FOR SOLVED PREVIOUS PAPERS OF INDIAN ECONOMIC SERVICE KINDLY CONTACT US ON OUR WHATSAPP NUMBER 9009368238
FOR SOLVED PREVIOUS PAPERS OF ISS KINDLY CONTACT US ON OUR WHATSAPP NUMBER 9009368238
FOR BOOK CATALOGUE
CLICK ON WHATSAPP CATALOGUE LINK https://wa.me/c/919009368238
Theories of Exhaustible and Renewable Resources
Natural resources can be broadly classified into exhaustible (non-renewable) and renewable resources. Understanding their economic management is crucial for sustainable development, as improper use can lead to resource depletion, environmental damage, and economic instability.
🔹 1. Exhaustible (Non-Renewable) Resources
Exhaustible resources are finite and cannot be regenerated within a human timescale. Examples include coal, oil, natural gas, and minerals. Since their supply is limited, economists focus on optimal extraction and conservation strategies.
🔹 Economic Theories for Managing Exhaustible Resources:
A. Hotelling’s Rule (1931) 📈
🔹 Proposed by Harold Hotelling, this rule states that the price of an exhaustible resource should rise over time at the rate of interest to ensure optimal depletion.
✔ If resource prices rise too slowly, firms will extract more now, depleting resources quickly.
✔ If prices rise too fast, demand will fall, making extraction unprofitable.
✔ The optimal path ensures intergenerational equity—balancing present and future resource use.
Limitations:
❌ Assumes perfect competition and no externalities (e.g., pollution costs).
❌ Ignores technological progress that may find substitutes for resources.
B. The Hartwick Rule (1977) 🏦
🔹 This rule suggests that if the profits from resource extraction are invested in productive capital (e.g., technology, infrastructure, or renewable energy), economic growth can continue even after resource depletion.
✔ Encourages savings and reinvestment rather than overconsumption.
✔ Aims for sustainable development by replacing depleted resources with human-made capital.
Criticism:
❌ Assumes that physical capital can fully replace natural resources, which may not always be true.
🔹 2. Renewable Resources
Renewable resources, such as forests, fisheries, and freshwater, can replenish naturally if used sustainably. However, if overexploited, they can become depleted, just like exhaustible resources.
🔹 Economic Theories for Managing Renewable Resources:
A. The Gordon-Schaefer Model (1954) 🎣
🔹 A model for fisheries economics, explaining the relationship between fishing effort and sustainable yield.
✔ If fishing effort is low, fish populations grow, and harvests remain sustainable.
✔ If overfishing occurs, fish stocks decline, leading to economic collapse.
✔ The optimal point is maximum sustainable yield (MSY)—the largest catch that allows fish stocks to regenerate.
Application: Used in policies for fishing quotas and marine conservation zones.
B. Logistic Growth Model 🌲
🔹 This model describes the growth of renewable resources over time:
✔ If usage is less than regrowth, resources expand.
✔ If usage exceeds regrowth, resources shrink and may collapse.
✔ Sustainable use requires keeping resource extraction below regeneration rates.
Example: Managing forest logging rates to prevent deforestation.
🔹 3. Comparing Exhaustible vs. Renewable Resource Management
| Feature | Exhaustible Resources | Renewable Resources |
|---|---|---|
| Availability | Finite, depletable | Regenerates if managed well |
| Economic Focus | Optimal extraction & substitution | Sustainable harvesting |
| Key Theories | Hotelling’s Rule, Hartwick Rule | Gordon-Schaefer Model, Logistic Growth Model |
| Risk of Overuse | Permanent depletion | Depletion if overexploited |
🔹 4. Sustainable Resource Management Strategies 🌍
✔ Substitution & Technological Innovation: Investing in renewable energy (solar, wind) to replace fossil fuels.
✔ Conservation & Efficiency: Encouraging energy-saving technologies and circular economy models.
✔ Regulation & Market-Based Instruments: Carbon taxes, fishing quotas, and tradable resource permits to control overuse.
✔ Investment in Human & Physical Capital: Following the Hartwick Rule by reinvesting resource revenues into education, infrastructure, and technology.
🔹 Conclusion
Exhaustible resources require optimal extraction to balance present and future needs, while renewable resources demand sustainable management to prevent depletion. Both require smart policies, technological innovation, and conservation efforts to ensure long-term economic and environmental stability.