Title:	A Hotelling Model with a Ceiling on the Stock of Externalities
Number:	03-21
Author:	Ujjayant Chakravorty, Bertrand Magné and Michel Moreaux
Issue Date:	October 2003 (Revised, December 2004)
Abstract:	The Kyoto Protocol aims to stabilize the concentration of carbon in the atmosphere, which is mainly caused by the burning of nonrenewable resources such as coal in power generation. We ask how a ceiling on the stock of emissions may a.ect the textbook Hotelling model. We show that when the ceiling is binding, both the low-cost nonrenewable resource (coal) and the high-cost renewable resource (solar energy) may be used jointly. Emissions may be reduced at any given time through abatement or by replacing coal with solar energy, but not both. If energy demand declines in the long run, we obtain a zigzag pattern of resource use: coal is used first, followed by the joint use of coal and clean solar energy when the ceiling is tight, reverting to coal again when emissions are no longer binding, and finally to solar energy when coal is exhausted.

Click on the paper title to download the paper and the figure.

You may view the paper in the following formats:

The paper is in PDF format. Click here to download Adobe Acrobat Reader .

Links to
    Economics Department Home Page
    Emory University Home Page