On the dynamics of non-renewable resource

The seminal paper on non-renewable resources by Hotelling (1931) defined the economics of non-renewable resources as that of intertemporal allocation: what is the optimal rate of usage of a finite resource when it is to be used over a period of time by agents who have a time preference? What follows from that observation is that non-renewable resources must be considered in the context of intertemporal optimization where the focus is on the factors that affect a model's dynamic equilibrium. In extending Hotelling's analysis a number of authors have identified numerous facets of non-renewable resources which play key roles in determining the path of production and the price of the resource.;This thesis begins by taking a cursory look at time series data of some non-renewable mineral resources and proposes that while existing models provide a good deal of insight into those data that there is need for additional explanation. It there then uses dynamic analysis to look at three enhancements to Hotelling's insight which have some theoretical appeal and which generalize the model to make it consistent with a broader range of observable data. The three enhancements studied include: (1) adjustment costs which produce a gradual transition between technologies and whose anticipation prevents a large transition cost from being imposed on future generations when the non-renewable resource is depleted; (2) research and development into alternative technologies and the optimality conditions for such expenditures; (3) the role of sunk costs in determining a firm's output decision. It is shown that these enhancements to a Hotelling paradigm make it possible to observe a wide range of output and price behavior which have not been accounted for in the existing literature. It is also shown that the third modification can account for behavior by mining firms that had previously been thought to be suboptimal.;Numerical analysis is also undertaken of a model which embodies the proposed enhancements and a brief analysis of non-renewable resources in a computable general equilibrium model is presented.