Notes

For normative purposes, the critical question is whether user costs are low because most exhaustible resources are in fact not scarce, or because resources are scarce but markets fail to recognize their scarcity, perhaps because of incomplete futures markets as suggested by Solow (1974b, p. 9). Weitzman (1999) assumes that markets do correctly assess resource values and estimates how much the exhaustibility of resources reduces welfare compared to the counterfactual case in which the resources considered could be supplied forever at their current quantities and extraction costs. He shows that this can be estimated as the ratio of world user costs to NDP and obtains an estimate of only about 1.5%, and even less when technological progress is allowed for.