The efficient use of non-renewable resources

Simpson, David R. F. (1979) The efficient use of non-renewable resources. Quarterly Economic Commentary, 5 (1). pp. 44-48. ISSN 0306-7866

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Economists since at least the time of Adam Smith have regarded the progress of human societies over time as a race between technical invention on the one hand and limited natural resources on the other. But the importance which they have attached to this problem has fluctuated. The concern which existed amongst economists in early 19th century Britain evaporated with the arrival from North America of supplies of low-priced corn, made possible by a combination of virgin lands. The issue has once again been brought to the forefront of public attention by some recent much publicised suggestions (eg Meadows, 1972, WAES 1977) that the world as a whole may be running out of supplies of a particular class of natural resources, those which are exhaustible or non-renewable. While depletion of these stocks in a physical sense seems indeniable, most contemporary economists have been inclined to accept the fragmentary empirical evidence available which suggests that there has not been depletion in an economic sense. Technical change, economies of scale, and product-factor substitution have meant that extractive commodities have over the past ICO years or so become less scarce in terms of the sacrifices required to obtain them, (Peterson & Fisher, 1977). Nevertheless, a number of economists, (Dasgupta & Heal, 1974, Pearce, 1976 and Koopmans, 1976) have in the last five years turned their attention to the question: at what rate should the non-renewable resources of a society be depleted? They have treated this question as an extension of a related question, already well established in the literature of economics: at what rate should the renewable resources of a society be accumulated, ie what is the optimal rate of investment over time? The answers traditionally given to these questions involve the maximisation of a sum of utility flows to be derived from future consumption. The principal parameters which occur in the models devised to answer such questions concern the substitutability between factors of production, the rate and character of technical change, uncertainty and utility.