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A policy-impact model for the supply of depletable resources with applications to crude oil

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  • Stern, Martin O.

Abstract

In the exploitation of many depletable resources, two separate investment activities can be distinguished that must take place if production is to continue in an orderly fashion: exploration and development. This paper describes a quasi-equilibrium model for these activities, based on competitive behavior within the industry, on slowly rising exploration costs, and on a price-inelastic demand. It is shown that if, with advancing depletion, exploration costs rise markedly and development costs relatively less, a little-recognized user cost arises that can be quantified. This user cost engenders a rental that may exert an even stronger upward pressure on the price of the extracted resource than the better known scarcity rent.

Suggested Citation

  • Stern, Martin O., 1977. "A policy-impact model for the supply of depletable resources with applications to crude oil," Energy, Elsevier, vol. 2(3), pages 257-272.
    • Handle: RePEc:eee:energy:v:2:y:1977:i:3:p:257-272
    DOI: 10.1016/0360-5442(77)90030-5
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    References listed on IDEAS

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    1. Richard Bellman, 1957. "On a Dynamic Programming Approach to the Caterer Problem--I," Management Science, INFORMS, vol. 3(3), pages 270-278, April.
    2. William D. Nordhaus, 1973. "The Allocation of Energy Resources," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(3), pages 529-576.
    3. Partha Dasgupta & Geoffrey Heal, 1974. "The Optimal Depletion of Exhaustible Resources," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(5), pages 3-28.
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    2. Imran, Muhammad & Amir, Namra, 2015. "A short-run solution to the power crisis of Pakistan," Energy Policy, Elsevier, vol. 87(C), pages 382-391.

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