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Fundamental Economics of Depletable Energy Supply Jeffrey Krautkraemer and Michael Toman

Abstract

In this paper, we first present and discuss the basic logic underlying all neoclassical economic theories of “optimal” energy supply: maximization of the present value of some stream of economic returns. We then discuss how the economic theory of optimal resource depletion has evolved since Hotelling’s classic 1931 article. We also consider the power of the theory to support improved empirical understanding of actual behavior. Our discussion of empirical literature indicates that this work has so far provided only limited empirical understanding.

Key Words: depletable resources, energy, intertemporal optimization

JEL Classification Numbers: Q4

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