A common claim in the nonrenewable resource literature is that improvements in technology may largely offset the effects of increasing scarcity over time. Along with Cuddington and Moss (CM) (1999), this paper provides perhaps the first empirical evidence on this issue by analyzing the determinants of the average finding cost for additional U.S. petroleum reserves. Both analyses cover the1967-90 period and use a new technology index constructed by Moss (1993). This paper proposes a new approach for estimating average finding costs in a model with depletion and/or technology variables. Earlier estimations of finding cost functions are possible spurious regressions because they use regression techniques that are inappropriate in the presence of nonstationary variables. This paper uses error correction modeling (ECM) to avoid the possible spurious regression problem. With the new technology variable, it is possible to isolate the separate effects of depletion and technological improvement on finding costs for additional proven reserves. The ECM facilitates counterfactual simulations for average finding costs in a scenario with no technological improvement while recognizing that annual reserve additions in this scenario might be higher or lower than they would have been with ongoing technological improvements. The simulations suggest that technological advance has been very significant in offsetting what would otherwise have been sharply rising costs for additions to U.S. natural gas reserves. Technology's impact on crude oil finding costs have been more modest, presumably because that segment of the industry is more mature.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Georgetown University, Department of Economics in its series Working Papers with number
00-03.
Length: 32 pages Date of creation: 31 Jul 2000 Date of revision: Handle: RePEc:geo:guwopa:gueconwpa~00-00-01
Contact details of provider: Postal: Georgetown University Department of Economics Washington, DC 20057-1036 Phone: 202-687-6074 Fax: 202-687-6102 Email: Web page: http://econ.georgetown.edu/
Order Information: Postal: Marcia Suss Administrative Officer Georgetown University Department of Economics Washington, DC 20057-1036 Email: Web: http://econ.georgetown.edu/
For technical questions regarding this item, or to correct its listing, contact: (Marcia Suss).
Find related papers by JEL classification: D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels