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A Competitive Sector Depletion Allowance in the Context of an Intertemporal Dominant-firm Model

Published online by Cambridge University Press:  17 August 2016

François Melese d’Hospital
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Extract

It is conceivable that the reaction of a government excluded from the cartelization of a strategic exhaustible resource (and suffering from a subsequent restriction in its supply) takes the form of a depletion allowance directed at home-country extractive firms in the industry. According to federal law, a depletion allowance is a tax reduction on income proportional to the amount of reserves extracted. Presumably the aim of such a manœuver would be to speed up the rate of extraction at home (i.e. tilting the extraction profile of home-country firms towards the present) thereby relieving short-run excess demand and simultaneously reducing dependence on foreign owned and controlled reserves. (Clearly, allusion can be made to the 1973-74 OPEC oil embargo and to the subsequent policy decisions made by governments of non-OPEC oil producing countries).

Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 45 , Issue 2 , June 1979 , pp. 179 - 193
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1979 

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Footnotes

*

Department of Economics, University of British Columbia and Institut de Recherches Economiques (IRES), Université Catholique de Louvain.

Thanks are due to E. Berndt, H. Campbell and A.D. Scott whose seminars on resource economics stimulated my interest in the topic, and finally to an anonymous referee for providing further insight into the problem. The usual disclaimers apply such that none of the above are implicated in the results.

References

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