Working Paper Series,
Swedish University of Agricultural Sciences, Department Economics

Abstract: We develop a dynamic model of prices and quantities of non-renewable resources, carefully justifying our assumptions. Resource stocks are inhomogeneous, and there is endogenous directed technological change both in extraction and final-good production. The model explains stylized facts while simultaneously providing a framework for prediction; it yields analytical results in the baseline case, and may be developed to make empirical predictions about real resources. In the baseline case the economy passes through a series of phases: initially resource consumption is low; as technology improves, resource consumption rises and real resource price is constant; in the long run there is a transition to a b.g.p. on which resource consumption is constant and resource price tracks the wage.

Keywords: Directed technological change; Natural resources; Hotelling rule.

JEL-codes: O13; O33

26 pages, May 4, 2012

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