Substitution Possibilities for Unpriced Natural Resources: Restricted Cost Functions for the Canadian Metal Mining Industry

A bstract -The effects of resource depletion on economic growth depend critically on the elasticities of substitution between non-renewable natural resources and reproducible inputs. Estimation of the elasticities of substitution for natural resources has been hindered by the absence of data on their prices, which results from the prevalence of vertical integration in natural resource industries. In this paper we use the theory of restricted cost functions to develop a general procedure for estimating substitution possibilities for unpriced inputs. Estimation of the model with data for the Canadian metal mining industry indicates that the elasticities of substitution for the natural resource, metallic ore, are equal to unity.