Hotelling and Recycling

Auteur(s) :
Bocar Samba Ba, Raphael Soubeyran

Article published in Resource and Energy Economics

This article studies the exploitation of recyclable exhaustible resources such as metals that are crucial for the energy transition or phosphorus that is crucial for agricultural production. We use a standard Hotelling model of resource exploitation that includes a primary sector and a recycling sector. We show that, when the primary sector is competitive, the price of the recyclable resource increases through time. We then show a new reason why the price of an exhaustible resource may decrease: when the primary sector is monopolistic, the primary producer has incentives to delay its production activities in order to delay recycling. As a consequence, the price path of the recyclable resource may be U-shaped. Numerical simulations show that the date of exhaustion of the virgin resource is further away in time for high and low levels of recoverability than for intermediate levels.

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