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Exhaustible natural resources, normal prices and intertemporal equilibrium

Parrinello, Sergio (2003): Exhaustible natural resources, normal prices and intertemporal equilibrium. Published in: Working Paper Dipartimento di Economia Pubblica , Vol. 57, (June 2003): pp. 1-25.

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Abstract

This paper proposes an extension of the classical theory of normal prices to an n-commodity economy with exhaustible natural resources. The central idea is developed by two analytical steps. Firstly, it is assumed that a given flow of an exhaustible resource in short supply is combined with the coexistence of two methods of production using that resource. Sraffa’s equations are reinterpreted by adopting the concept of effectual supply of natural resources and avoiding the assumption of perfect foresight. Secondly, in force of the Hotelling rule, some limitations are imposed to the dynamics of normal prices and, by implication, to technical and structural change. A comparison, between such approach and the notion of intertemporal equilibrium with natural resources, introduces the central argument. The final part of the paper presents a critical assessment of recent works in this area. The conclusions are focused on methodological issues. Final version of this working paper: S. Parrinello, “The Notion of Effectual Supply and the Theory of Normal Prices with Exhaustible Natural Resources”, Economic Systems Research, Vol. 16, No. 3, September 2004.

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