On equilibrium in resource markets with scale economies and stochastic prices
AbstractIn this paper, I show the existence and the characteristics of equilibrium in a non-renewable resource market where extraction costs are non-convex and market price is subject to stochastic shocks, an empirically relevant setting. In my model firms may be motivated to hold inventories to facilitate production smoothing, which allows them to continue producing at a smooth pace at any instant when extraction ceases, e.g. when reserves are exhausted. This aspect of the model then supports a competitive equilibrium in the presence of non-convex costs. Casual empirical evidence is provided that supports the central features of my model for a variety of non-renewable resources, lending credence to the explanation for equilibrium I propose.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Environmental Economics and Management.
Volume (Year): 64 (2012)
Issue (Month): 3 ()
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Web page: http://www.elsevier.com/locate/inca/622870
Resource economics; Inventories; Stochastic dynamic optimization;
Other versions of this item:
- Charles F Mason, 2012. "On Equilibrium in Resource Markets with Scale Economies and Stochastic Prices," OxCarre Working Papers 073, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
- Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
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