ABSTRACT
This chapter provides a brief introduction to the origins of the Dasgupta Heal backstop models. It demonstrates the reliance of the Dasgupta Heal models on the original Hotelling models. The backstop models analyze the optimal production path of an exhaustible resource when there is a substitutable alternative energy technology available, known as a “backstop.” There are two basic sets of models: those with green energy technologies and those with carbon-emitting technologies. Partha Dasgupta and Geoffrey Heal created these models in the 1970s; the models were developed in response to concerns that exhaustion of fossil fuels could limit economic growth. Hotelling found that commonplace economic concepts predicated on traditional supply and demand analysis might fail since the pricing space of exhaustible resources is often complex. Hotelling makes a complicated assumption, combining several ideas: resource owners will maximize the net revenues from each unit of exhaustible resource, while also fully depleting their assets.
