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An 'oil'igopoly theory of exploration

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  • Boyce, John R.
  • Vojtassak, Lucia

Abstract

This paper develops a theory of [`]oil'igopoly exploration of an exhaustible resource. Strategic exploration and production are jointly derived in a three period subgame perfect equilibrium. While the [`]oil'igopoly theory of exploration shares many features with non-strategic models of exploration and production, there is one important difference. The [`]oil'igopoly theory of exploration predicts that firms who exhaust their proved reserves before they can convert their unproved reserves into proved reserves have an incentive to over-explore, relative to the Nash equilibrium level of exploration. A simple empirical prediction is that firms holding smaller proved reserves should be observed doing more exploration. This prediction is consistent with country-level production and reserve data in the post-World War II era.

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Bibliographic Info

Article provided by Elsevier in its journal Resource and Energy Economics.

Volume (Year): 30 (2008)
Issue (Month): 3 (August)
Pages: 428-454

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Handle: RePEc:eee:resene:v:30:y:2008:i:3:p:428-454

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Web page: http://www.elsevier.com/locate/inca/505569

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Citations

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Cited by:
  1. L. Lambertini, 2013. "Exploration for Nonrenewable Resources in a Dynamic Oligopoly: An Arrovian Result," Working Papers wp859, Dipartimento Scienze Economiche, Universita' di Bologna.
  2. Kristine Grimsrud & Knut Einar Rosendahl & Halvor Briseid Storrøsten & Marina Tsygankova, 2013. "Short run effects of bleaker prospects for oligopolistic producers of a non-renewable resource," Discussion Papers 733, Research Department of Statistics Norway.

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