is the opportunity cost of producing the last unit of a resource in this period and is the discounted value of that unit of the resource sold in the next and all future periods (Hotelling 1931, Howe 1979, Hall and Hall 1984).
Consumption trends or shocks create atypical scarcity rents
, which then warrant a permanent or temporary increase in the price of water to restore equilibrium, i.e., alleviate water shortage.
The scarcity rent
is the increase in the value of the right to pollute one unit.
The first, albeit small, appearance of this scarcity rent
came shortly after sulfur emissions--the cause of acid rain--were capped by the Clean Air Act of 1990, the de facto end of the free sky era.
According to (6), the marginal utility (or equivalently, the competitive price) of the resource should at any time cover its full social marginal cost which consists of the marginal extraction cost, the scarcity rent
, and the shadow extemality cost of an additional unit of carbon added to the existing aggregate stock of carbon.
The requirement to use these valuable permits raises the cost of production, and thus lowers the real net wage, but the scarcity rent
goes to permit recipients.
(2) What mattered was whether policies created scarcity rents
and whether the government received the rents and used them to lower other distortionary taxes.
Even if capital costs were trivial and one would not need rents to cover them, capacity constraints would bind during the time it takes to build the plants, producing scarcity rents
until new plants are built.
, Schumpeterian rents, and monopoly rents