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Technology Adoption In The Presence Of An Exhaustible Resource: The Case Of Groundwater Extraction, Ujjayant N. Chakravorty, Farhed Shah, David Zilberman

Ujjayant Chakravorty

In this paper we integrate technology diffusion within Hotelling's exhaustible resource model. The modern technology is a conservation technology such as drip irrigation used with groundwater. Resource quality heterogeneity and rising water prices are responsible for the gradual adoption of the modern technology, and under reasonable conditions the diffusion curve is an S-shaped function of time. Without intervention, the diffusion process will be slower than is socially optimal, and optimal resource use tax will accelerate the diffusion of the conservation technology and slow down excessive resource depletion caused by market failure due to open access conditions.