Skip to main content
Article
Resources as an Input of Production in a Two-Sector Economy
The B.E. Journals in Theoretical Economics (2006)
  • Jia Xie
Abstract

This paper extends models of renewable resources to an economy with two sectors, resource extraction and production. In contrast to one sector models, we show that the optimal strategies in the single-firm model are essentially different from those in the two-player model. In the single-player model, the optimal strategy is to keep the resource extraction a constant multiple of production labor. In the two-player model, the optimal strategy for each player is to keep extracting labor a constant multiple of production labor. It is also shown that the extraction-to-production labor ratio is increasing with the wage and the interest rate and is decreasing with the production TFP, the extraction TFP, and the stock level in the single-player model, but not in the two-player model. Finally, I show that another way for each firm to maximize profit is to raise its zero-profit stock level by maximizing its geometric average TFP.

Keywords
  • resource extraction,
  • dynamic optimization,
  • two-sector economy,
  • non- cooperative game,
  • Nash equilibrium
Disciplines
Publication Date
December, 2006
Citation Information
Jia Xie. "Resources as an Input of Production in a Two-Sector Economy" The B.E. Journals in Theoretical Economics Vol. 6 Iss. 1 (2006)
Available at: http://works.bepress.com/jia_xie/1/