Technological Change and Market Dynamics: First Part

Abstract

Nonrenewable resource scarcity has been a traditional concern when designing optimal growth models. Technological change has played an important role in those models, since its presence mitigates the depletion effect on extraction paths over time. Moreover, in empirical research, when studying the time trends of prices and other scarcity measures, the role played by technology is crucial. The effects of technological change have been studied in previous literature in several different ways. More emphasis has been placed on capital-resource growth models than on specific sectors! behaviour models. However, in order to predict actual market dynamics the latter are more appropriate. In this paper, we examine the impact of different kinds of technological change on extraction path over time, in the context of a competitive resource industry. Two cases are considered. In the first case, prices are assumed to be exogenous, while in the second demand is introduced. There-fore, both price and extraction paths result from demand/supply dynamics. Implications for the evolution of scarcity measures (price, marginal extraction cost and user cost) are derived.