THE CONSERVATIONISTS DILEMMA

It is typically thought that conservation of natural resources is encouraged by low interest rates. However, when capital goods are used to extract the resource, low interest rates may discourge rather than encourage conservation. Using a model of a capacity-constrained extractive industry in competitive equilibrium, I find the relationship between the initial rate of exploitation and the interest rate. If capital is so ''important'' that for sufficiently high interest rates the industry is nonviable, the graph of initial quantity versus the interest rate is U-shaped; the traditional result holds at small interest rates but not at large ones.