We examine the best extraction strategies for the provider of an exhaustible resource thatcan be recycled. In a two-period model of resource extraction, the extractor faces prospectiveentry by a recycler that incurs a fixed cost to p roduce a perfect substitute of the virgin resource.Its entry is an opportunity or a threat for the extractor, depending on whether it maximizessocial welfare or its own revenue. Our results highlight how prospective recycling modifiesthe Hotelling rule. We characterize various entry possibilities. The benevolent extractor mayaccommodate or promote recycling, while the self-interested extractor may accommodate ordeter recycling.
Is recycling a threat or an opportunity for the extractor of an exhaustible resource?
19 October 2018