Exhaustible Resources, Technology Transition, And Endogenous Fertility in an Overlapping - Generations Model

The paper presents a synthesis of the economics of exhaustible resources and that of endogenous fertility in an overlapping-generations model. Renewable energy is produced by a backstop, while the consumption good is produced from energy – provided by the backstop or from a stock of fossil fuels – and labor. Along the equilibrium path, we show that the stock of fossil fuels might or might not have been completely depleted. Under the first possibility, the forward-looking competitive equilibrium can be computed recursively from the steady state of the economy. This is however no longer possible under the second possibility where the part of the resource stock left in situ serves as the oil bubble. In this case, long run equilibrium indeterminacy arises with a continuum of possible steady states. Also, the dynamic convergence to a steady state is far from being simply monotone, and might exhibit cyclical behavior, such as damped oscillation, limit cycles, etc.