Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/105150
Authors: 
Andrade de Sá, Saraly
Daubanes, Julien
Year of Publication: 
2014
Series/Report no.: 
CESifo Working Paper 5058
Abstract: 
Demand for oil is very price inelastic. Facing such demand, an extractive cartel induces the highest price that does not destroy its demand, unlike the conventional Hotelling analysis: the cartel tolerates ordinary substitutes to its oil but deters high-potential ones. Limit-pricing equilibria of non-renewable-resource markets sharply differ from usual Hotelling outcomes. Resource taxes have no effect on current extraction; extraction may only be reduced by supporting its ordinary substitutes. The carbon tax applies to oil and also penalizes its ordinary (carbon) substitutes, inducing the cartel to increase current oil production. The carbon tax further affects ultimately-abandoned oil reserves ambiguously.
Subjects: 
carbon tax
limit pricing
non-renewable resource
monopoly
demand inelasticity
substitutes subsidies
JEL: 
Q30
L12
H21
Q42
Document Type: 
Working Paper

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