Production and Investment in Natural Resource Industries.

Abstract

A logical problem has been encountered, however, in efforts to examine the optimum allocation of a natural resource over time without explicitly considering the rate of investment associated with resource use. This difficulty stems from the long life of many capital items used in the process of exploiting the natural resource. Earlier studies have either tacitly or explicitly amortized costs of investment associated with resource use and proceeded as though all costs of production were essentially variable. Smith was the first to explicitly bring capital investment into a production model for natural resources, and his work was followed by the authors where only exhaustible resources were considered. More recently, Quirk and Smith have introduced a dynamic model of the fishery in which capital investment is treated explicitly.

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