Technology adoption in nonrenewable resource management

Technological change has played an important role in models of nonrenewable resource management, since its presence mitigates the depletion effect on extraction costs over time. We formalize the problem of a competitive nonrenewable resource extracting firm faced with the possibility of technology adoption. Based on a quadratic extraction cost function, our results show that the expected net benefits from adoption increase both with the size of the resource stock and with prices. A boundary that separates the region where expected net benefits are positive from the one where they are negative is derived. (C) 2008 Elsevier B.V. All rights reserved.