Introduction

This chapter is by way of being introductory. It is also the most formal of the chapters in the book. We shall introduce several concepts that will prove essential in discussing the economics of exhaustible natural resources. Since these notions form the basis of resource allocation theory it will prove useful to avoid mentioning exhaustible resources at this stage. This is so for two reasons. One of our aims in this book is to explore the extent to which economics can usefully be applied to analyse the allocation of exhaustible natural resources under various circumstances. As a minimum we must then sketch the theory to which we shall be appealing. This forms our first reason. Our second reason is that while exhaustible resources are much like any other resource, they possess some strong special features. The remainder of this book will analyse these special features. This being so, it is important to make precise what they are special features of.

In this chapter we shall discuss resource allocation in the simplest of environments—one that is timeless and where the agents face no uncertainty. In fact the construction can be reinterpreted to accommodate both time and uncertainty. This will be done in Chapters 4, 8 and 14. It is possible that all readers are familiar with the material of this chapter. If a glance persuades the reader of this he can go directly to Chapter 3.