Scarce Natural Resources, Recycling, Innovation and Growth by Markus Merz

By Markus Merz

This thesis makes use of neoclassical progress versions to judge what impression the constrained availability of nonrenewable assets has at the economy’s (world’s) development strength. Markus Merz concludes that recycling may well function a mid-term method to persevered development, yet technological development is required within the long-run. The theoretical research begins with the well known Dasgupta-Heal version and considers the impression of recycling and technological growth at the source constraints; resource-augmenting and backstop expertise are analyzed. After a radical research of the types it really is concluded that the last word method to long term monetary progress is a backstop technology.

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This problem is addressed by introducing the resource-augmenting technology. Now capital is no longer entirely consumed. The rate of capital accumulation increases as long as it is less than the resource-augmenting technology growth rate. Otherwise, current consumption eventually provides greater present value utility than the future output of additional capital and capital accumulation stops. In addition, along an optimal path the growth rate of the marginal product of the natural resource in efficiency units grows until the marginal product of physical capital in efficiency units equals the growth rate of the technological change (modified Hotelling rule): F˙˜R = F˜k − δ F˜R R˙ k˙ α − α = αka−1 R1−α − δ .

This extension prevents the starvation of mankind. This model will be described in more detail later on. In the subsequent chapters a backstop technology is introduced. According to Nordhaus et al. (1973) a backstop technology is an ultimate production technology which uses an abundant (infinite) resource and capital as inputs. In subsequent articles, several economists have included backstop inputs in models of exhaustible resources. Examples are Dasgupta and Heal (1974) and Kamien and Schwartz (1978).

As Krautkraemer (1998, p. ” A finite resource stock only allows the production of a finite output, leading again to the ultimate starvation of mankind. Only if the limited natural resource input is substituted by an infinite available resource as a result of technological progress, will the ultimate starvation of mankind be avoided. 2 Uncertain Technological Progress A first attempt to model such an alternative resource-saving technological progress was done by Dasgupta and Heal (1974). They consider the possibility that a new technology will eventually appear that is not reliant on limited natural resources.

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