THE CONSERVATIONISTS DILEMMA

It is typically thought that conservation of natural resources is enco uraged by low interest rates. However, when capital goods are used to extract the resource, low interest rates may discourge rather than enc ourage conservation. Using a model of a capacity-constrained extractiv e industry in competitive equilibrium, I find the relationship between the initial rate of exploitation and the interest rate. If capital is so ''important'' that for sufficiently high interest rates the indust ry is nonviable, the graph of initial quantity versus the interest rat e is U-shaped; the traditional result holds at small interest rates bu t not at large ones.