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Confuser Cost

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Author Info

  • Sittidaj Pongkijvorasin

    (Department of Economics, University of Hawaii at Manoa; Chulalongkorn University, Bangkok, Thailand)

  • James Roumasset

    ()
    (Department of Economics, University of Hawaii at Manoa)

Abstract

The terms “royalty”, “marginal user cost”, and “scarcity rent” are often used interchangeably in resource economics, resulting in considerable confusion. We suggest distinct and meaningful definitions for the terms “royalty”, “marginal user cost”, and “scarcity rent” and discuss the relationships among them. Using the example of extraction fees for leasees, we show how failing to understand the distinct meaning of these terms may lead to policy errors. By constructing a model containing both capital and resources as state variables, we verify that user cost in capital theory is a different concept than marginal user cost in resource economics and suggest a taxonomy to avoid misinterpretation.

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File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_07-12.pdf
File Function: First version, 2007
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Bibliographic Info

Paper provided by University of Hawaii at Manoa, Department of Economics in its series Working Papers with number 200712.

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Length: 14 pages
Date of creation: 12 Jun 2007
Date of revision:
Handle: RePEc:hai:wpaper:200712

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Related research

Keywords: renewable resources; marginal user cost; royalty; scarcity rent; shadow price; Hotelling rent; user cost of capital;

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  1. Michael A. Toman, 1986. ""Depletion Effects" and Nonrenewable Resource Supply: A Diagrammatic Exposition," Land Economics, University of Wisconsin Press, vol. 62(4), pages 341-352.
  2. W. Erwin Diewert, 2005. "Issues in the Measurement of Capital Services, Depreciation, Asset Price Changes, and Interest Rates," NBER Chapters, in: Measuring Capital in the New Economy, pages 479-556 National Bureau of Economic Research, Inc.
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