Production from an Exhaustible Resource Under Government Control in an LDC

Abstract

This paper investigates production from an exhaustible resource when the objective is to maximize the total value of output retained within the domestic economy rather than profit maximization. Maximization of retained value is more relevant in less developed countries and governments have in certain cases purchased a controlling share in extractive industries in order to produce at levels that are optimal under this objective. The conclusion of the paper is that optimal output will be higher than under profit maximization, and the larger the value of output going to domestic inputs, the larger the output differential in output.