ABSTRACT
Suppose that a small country is totally dependent upon its trading partners for an essential raw material derived from an exhaustible and non-renewable resource stock. Suppose, further, that the net price (i.e. price less average cost of extraction) of the raw material is rising exponentially. (Hotelling (1931) has shown that the net price of the raw material must behave in this way if the rest of the world is competitive and enjoys perfect myopic foresight.) Such a country will progressively economize in its use of the material by substituting for it the services of durable produced inputs or capital. Can the strategy of substitution succeed, in the restricted sense of imposing a positive lower bound on per capita consumption? Can it succeed in the sense of making possible ever-growing per capita consumption?
