EXHAUSTIBLE RESOURCE-ALLOCATION IN AN OVERLAPPING GENERATIONS ECONOMY

This paper analyzes competitive allocations of an exhaustible resource in an overlapping generations economy. Conditions are given for the e xistence of equilibrium extraction rules such that both extraction and investment in future stocks are increasing and continuous in the curr ent stock. The paper then considers the time paths of equilibrium allo cations and shows that there are economies where equilibrium resource extractions and prices exhibit nonclassical behavior. This is illustra ted through a finite horizon example in which extractions increase and prices decrease over the entire time horizon and an infinite horizon example where there are persistent cycles in extractions and prices an d multiple equilibria. The paper concludes by examining welfare issues . (C) 1997 Academic Press.