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American Economic Review: Vol. 98 No. 3 (June 2008)

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Ordering the Extraction of Polluting Nonrenewable Resources

Article Citation

Chakravorty, Ujjayant, Michel Moreaux, and Mabel Tidball. 2008. "Ordering the Extraction of Polluting Nonrenewable Resources." American Economic Review, 98(3): 1128-44.

DOI: 10.1257/aer.98.3.1128

Abstract

A well-known theorem by Herfindahl states that the low-cost nonrenewable resource must be exploited first. Consider resources that are differentiated only by their pollution content. For instance, both coal and natural gas are used to generate electricity, yet coal is more polluting. We show that the ordering of extraction need not be driven by whether a resource is clean or dirty. Coal may be used first, followed by natural gas, and again by coal. Such "vacillation" does not occur under cost heterogeneity. A perverse policy implication is that regulating pollution may accelerate use of the polluting resource.

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Authors

Chakravorty, Ujjayant (U Alberta)
Moreaux, Michel (U Toulouse I)
Tidball, Mabel (INRA-LAMETA, Montpellier)

JEL Classifications

Q38: Nonrenewable Resources and Conservation: Government Policy
Q53: Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
Q58: Environmental Economics: Government Policy
Q32: Exhaustible Resources and Economic Development


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