Optimal investment policies with exhaustible resources: An information-based model

Ayres, R.U. (1988). Optimal investment policies with exhaustible resources: An information-based model. Journal of Environmental Economics and Management 15 (4) 439-461. 10.1016/0095-0696(88)90037-X.

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An information-based model of the “optimal control” type is developed using concepts from information theory to explore the dynamics of fossil resource exhaustion and the phenomenon of substitution by other forms of capital and technological knowledge. All exhaustible resources stocks and forms of capital (and knowledge) are taken to be equivalent to forms of information in the physical sense. It is shown that, with optimal policies, the planning period, or cycle, has several distinct phases, with different optimal investment patterns. The model has two important qualitative implications: (1) economic growth rates are inherently discontinuous and (2) the model predicts an evolutionary structural change, viz., the creation of a new sector in response to the progressive exhaustion (or obsolescence) of previously essential resources or capital stocks. A multiperiod extension is suggested, leading to a tentative explanation for the Kondratieff long-wave phenomenon.

Item Type: Article
Research Programs: Theory of Manufacturing (TOM)
Depositing User: Romeo Molina
Date Deposited: 11 Apr 2016 09:43
Last Modified: 27 Aug 2021 17:40
URI: https://pure.iiasa.ac.at/12584

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