EEP101_lecture14a

Reserves more reserves increase extraction market

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Unformatted text preview: extract less than competitive producers Open access result in excessive mining Regulation and policies Technology control (restriction on use of explosives) Zoning ( do not drill in Alaska) Generic Model Generic Marginal Mining cost. MNC(x) . Marginal future cost (User costs). MFC(x). The future cost represents loss of future opportunities by present extraction. represents Externality cost. MEC C =Optimal allocation A=Allocation under open access B=Allocation without considering externality costs Alternative Allocations Alternative Open access and no regulation will result in excessive resource use (A- Pollution & future ignored) Competitive supply by firms with well defined resources, ownership rights without pollution control without still result in excessive mining (B) Competitive supply when ownership is well defined and Competitive pollution is taxed results in optimum (C) pollution Cartel may under provide resources (if price under Cartel monopoly is greater than at C) or under provide if pollution cost great than the cartel’s price increase. pollution Elements of a Resource Policy Elements (1) Establishing private prosperity...
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