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Economics of Exhaustible Resources

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Competition over natural resources can result in conflict.

The economics of exhaustible resources refers to the use and management of natural resources, such as fossil fuels, minerals and precious metals. This branch of study involves the interface of resource, energy, and environmental economics.

  1. Identification

    • Resources are exhaustible if present rates of consumption result in less availability in the future. Examples of exhaustible resources include oil, natural gas, gold, silver, diamonds, and various minerals.

    Significance

    • Because exhaustible resources are often used as energy sources and as inputs for producing many goods, the management of these resources affects the overall economy.

    History

    • Economist Harold Hotelling was one of the first to write about the economics of exhaustible resources in a 1931 article, published in the Journal of Political Economy.

    Theories/Speculation

    • In his 1931 article, Hotelling stated that as a resource is depleted, the price rises. As a result, the demand for that resource declines. This is the fundamental theory of the economics of exhaustible resources.

    Effects

    • Dwindling stocks of exhaustible resources, such as oil, often spark global competition and even armed conflict over access to and control of these resources, particularly if they have strategic value.

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  • Photo Credit Image by Flickr.com, courtesy of Rainmaker

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