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A Test of the Theory of Exhaustible Resources

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  • Halvorsen, Robert
  • Smith, Tim R
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    Abstract

    An empirical test of the theory of exhaustible resources requires an estimate of the time path of the shadow price of the unextracted resource that generally is not observable because of the prevalence of vertical integration in natural resource industries. In this paper, the authors use duality theory to derive an econometric model that provides a statistical test of the theory of exhaustible resources. A restricted cost function is used to obtain estimates of the shadow prices of unextracted resources. The procedure is illustrated with data for the Canadian metal mining industry. For this industry, the empirical implications of the theory of exhaustible resources are strongly rejected. Copyright 1991, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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    Bibliographic Info

    Article provided by MIT Press in its journal Quarterly Journal of Economics.

    Volume (Year): 106 (1991)
    Issue (Month): 1 (February)
    Pages: 123-40

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    Handle: RePEc:tpr:qjecon:v:106:y:1991:i:1:p:123-40

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    Web: http://mitpress.mit.edu/journal-home.tcl?issn=00335533

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    1. Miller, Merton H & Upton, Charles W, 1985. "A Test of the Hotelling Valuation Principle," Journal of Political Economy, University of Chicago Press, vol. 93(1), pages 1-25, February.
    2. Schankerman, Mark & Nadiri, M. Ishaq, 1986. "A test of static equilibrium models and rates of return to quasi-fixed factors, with an application to the Bell system," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 97-118.
    3. Agbeyegbe, Terence D., 1989. "Interest rates and metal price movements: Further evidence," Journal of Environmental Economics and Management, Elsevier, vol. 16(2), pages 184-192, March.
    4. Farrow, Scott, 1985. "Testing the Efficiency of Extraction from a Stock Resource," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 452-87, June.
    5. Deshmukh, Sudhakar D. & Pliska, Stanley R., 1985. "A martingale characterization of the price of a nonrenewable resource with decisions involving uncertainty," Journal of Economic Theory, Elsevier, vol. 35(2), pages 322-342, August.
    6. Heal, Geoffrey & Barrow, Michael, 1980. "The Relationship between Interest Rates and Metal Price Movements," Review of Economic Studies, Wiley Blackwell, vol. 47(1), pages 161-81, January.
    7. Stollery, Kenneth R., 1983. "Mineral depletion with cost as the extraction limit: A model applied to the behavior of prices in the nickel industry," Journal of Environmental Economics and Management, Elsevier, vol. 10(2), pages 151-165, June.
    8. Lau, Lawrence J., 1976. "A characterization of the normalized restricted profit function," Journal of Economic Theory, Elsevier, vol. 12(1), pages 131-163, February.
    9. Swierzbinski, Joseph E. & Mendelsohn, Robert, 1989. "Information and exhaustible resources: A Bayesian analysis," Journal of Environmental Economics and Management, Elsevier, vol. 16(3), pages 193-208, May.
    10. David Levhari & Nissan Liviatan, 1977. "Notes on Hotelling's Economics of Exhaustible Resources," Canadian Journal of Economics, Canadian Economics Association, vol. 10(2), pages 177-92, May.
    11. Halvorsen, Robert & Smith, Tim R, 1984. "On Measuring Natural Resource Scarcity," Journal of Political Economy, University of Chicago Press, vol. 92(5), pages 954-64, October.
    12. Brown, Gardner M, Jr & Field, Barry C, 1978. "Implications of Alternative Measures of Natural Resource Scarcity," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages 229-43, April.
    13. Smith, V Kerry, 1979. "Natural Resource Scarcity: A Statistical Analysis," The Review of Economics and Statistics, MIT Press, vol. 61(3), pages 423-27, August.
    14. Dasgupta, Partha & Stiglitz, Joseph, 1981. "Resource Depletion under Technological Uncertainty," Econometrica, Econometric Society, vol. 49(1), pages 85-104, January.
    15. Pindyck, Robert S, 1980. "Uncertainty and Exhaustible Resource Markets," Journal of Political Economy, University of Chicago Press, vol. 88(6), pages 1203-25, December.
    16. Slade, Margaret E., 1982. "Trends in natural-resource commodity prices: An analysis of the time domain," Journal of Environmental Economics and Management, Elsevier, vol. 9(2), pages 122-137, June.
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