Monopoly and the Rate of Extraction of Exhaustible Resources: Note

Abstract

The contention that a monopolist exhausts a natural resource at a slower than socially optimal rate is examined for two cases: (1) fixed operation costs; and (2) demand elasticity increasing with output. Under either or both of these assumptions, monopoly extraction rates may be biased in the opposite direction towards excessive resource use. On balance, it is concluded, the effect of monopoly ownership on relative extraction rates must be determined empirically. Furthermore we suggest that the addition of fixed costs into the analysis will tend to destroy the Pareto optimal properties of resource extraction under competitive conditions.

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