Lobbying over Exhaustible-Resource Extraction

Consider a lobby group of exhaustible-resource suppliers, which bargains with the government over the extraction of an exhaustible resource and over contribution payments. We characterize the path of contributions and the resulting extraction path, taking into account how the environmental damage of resource usage and the demand elasticity change optimal extraction. A high marginal environmental damage reduces the government’s preferred extraction, a high price elasticity of resource demand reduces that of the lobby. We show that if the former effect dominates, the equilibrium contributions in a setting of repeated bargaining exceed those under full commitment.