Resource Extraction: Imperfect vs. Perfect Substitutes

The recent literature about exhaustible resource extraction emphasized the analysis of perfect substitutes (“backstop”), but overlooked the important case of imperfect substitutes. However, the hypothesis of imperfect substitutes, exhaustible and renewable, seems more appropriate for such important commodity markets like the market of primary energy carriers. This paper investigates whether properties of resource extraction programmes, which are typical for the perfect substitute hypothesis, e.g. strict sequential exploitation of the reservoirs, discontinuous and instant supply by backstop technologies etc., carry over to the case of limited and imperfect substitution.