We wish to thank Mark Bagnoli and especially Carl Simon for helpful comments on a previous draft of this paper.

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Abstract.  Natural resource stocks held in situ are physical assets. Equilibrium in the assets market requires that their rates of return be such that their owners are just willing to hold on to them rather than invest elsewhere. I discuss a number of factors relating to the evolution of extraction costs, to the durability of the resource, to market structure, and to uncertainty, that are important in correctly characterizing the rate of return on holding exhaustible natural resource stocks. The emphasis is put on how those factors can potentially help bridge the gap between the basic Hotelling's rule of natural resource exploitation and the historical behaviour of the flow price of a number of resources. I also highlight some theoretical and empirical issues that need further attention.

Consider a general equilibrium framework where the marginal cost of extraction from several deposits of an exhaustible resource is constant in terms of an inexhaustible perfect substitute and differs between deposits. The instantaneous rate of production from the inexhaustible resource is subject to a capacity constraint. We show, under standard assumptions, that not only may it be optimal to begin using a high cost resource before a lower cost one is depleted, as shown in Kemp and Long (1980a), but it may be optimal to begin using it strictly before the lower cost one is even put into use. Thus the intuitive principle, derived from partial equilibrium analysis, that when the rate of discount is positive natural resources should always be exploited in strictly increasing order of costs, not only does not hold in a general equilibrium context, but may be totally reversed.

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The endogenous merger model of Kamien and Zang (QJE, 1990) is generalized to price competition with perfect complements and used to show that some socially desirable mergers will fail to occur. We also clarify the link between this merger model and the 'exogenous merger' literature. Correspondence to: Gerard Gaudet, Departement des sciences Cconomiques. Universite du Quebec i Montreal. C.P. 8888 Succursale A, Montreal. Quebec, Canada H3C 3P8.' Their so-called decenrrulized gcme is actually a three-stage game. We restrict our attention here to their centroked gnmc.which reduces to a two-stage game. 01651765/92/$05.00 D 1992 -Elsevier Science Publishers B.V. All rights reserved

We analyze the exploitation of an antibiotic in a market subject to open access on the part of antibiotic producers to the common pool of antibiotic efficacy and compare it to the social optimum. Demand for the antibiotic is derived under the assumption that individuals differ with respect to their valuation of being in good health. The dynamics of the antibiotic efficacy is based on an epidemiological model which describes the dynamic interaction between the level of efficacy of the antibiotic and the level of infection in the population, including the fact that antibiotic consumption tends to deplete the efficacy of the antibiotic in combating bacterial infections as the bacteria develop resistance to the antibiotic. The antibiotic producers care only about the variables that affect the instantaneous demand for the drug, namely the current stock of infected population and the current level of efficacy of the antibiotic, and enter the market until price is driven down to average cost. The social optimum, on the other hand, takes into account the welfare of the entire population, including that portion of the population which is in good health and that which is infected but chooses not to consume the antibiotic, as well as the effect of the current treatment rate on the future efficacy of the treatment and the future stock of infected population. We show that depending on the parameters of the model, in particular the cost of production and the improvement in the recovery rate that results from treatment, the positive steady-state level of antibiotic efficacy to which the system tends under open access can be lower or higher than the level which should prevail in the socially optimal steady state. In fact there are parameter configurations for which the steady states can be exactly the same. But no matter how the steady states compare, the socially optimal and the open-access paths to steady state will differ and involve different paths for the treatment rates.