INTRODUCTION AND OVERVIEW
Nonrenewable resources do not exhibit significant growth or renewal over an economic time scale. Examples include coal, oil, natural gas, and metals such as copper, tin, iron, silver, and gold. I noted in Chapter 1 that a plant or animal species might be more appropriately viewed as a nonrenewable, as in Chapter 4, where the stock of old-growth forest was modeled as a nonrenewable resource. In Chapter 2, in the mine manager's problem, I developed a finite-horizon model of a nonrenewable resource to show how Solver might be used to determine the optimal extraction path.
If the initial reserves of a nonrenewable resource are known, the question becomes, “How should they be extracted over time?” Is complete depletion (exhaustion) ever optimal? Is it ever optimal to abandon a mine or well with positive reserves? Does the time path of extraction by a competitive firm differ from that of a price-making monopolist or cartel? If exploration allows a firm to find (acquire) more reserves, what is the optimal risky investment in exploration?
In working through the various models of this chapter, an economic measure of resource scarcity will emerge that is different from standard measures based on physical abundance. From an economic perspective, scarcity should reflect net marginal value (marginal value less the marginal cost of extraction).