Depletion and Development: Natural Resource Supply with Endogenous Field Opening
AbstractThis paper develops a model in which supply of a non-renewable resource can adjust through two margins: the rate of depletion and the rate of field opening. Faster depletion of existing fields means that less of the resource can ultimately be extracted, and optimal depletion of open fields follows a (modified) Hotelling rule. Opening a new field involves sinking a capital cost, and the timing of field opening is chosen to maximize the present value of the field. Output dynamics depend on both depletion and field opening, and supply responses to price changes are studied. In contrast to Hotelling, the long run equilibrium rate of growth of prices is independent of the rate of interest, depending instead on characteristics of demand and geologically determined supply.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3608.
Date of creation: 2011
Date of revision:
non-renewable resource; depletion; exhaustible; Hotelling; fossil fuel; carbon tax;
Other versions of this item:
- Anthony J. Venables, 2011. "Depletion and Development: Natural resource supply with endogenous field opening," OxCarre Working Papers 062, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
- Tony Venables, 2011. "Depletion and development: natural resource supply with endogenous field opening," Economics Series Working Papers 554, University of Oxford, Department of Economics.
- D90 - Microeconomics - - Intertemporal Choice - - - General
- Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General
- Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
- Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
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