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 Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford in its series OxCarre Working Papers with number 062.
Date of creation: 2011
Date of revision:
natural resource; depletion; Hotelling; fossil fuel; carbon tax;
Other versions of this item:
- Tony Venables, 2011. "Depletion and development: natural resource supply with endogenous field opening," Economics Series Working Papers 554, University of Oxford, Department of Economics.
- Anthony J. Venables, 2011. "Depletion and Development: Natural Resource Supply with Endogenous Field Opening," CESifo Working Paper Series 3608, CESifo Group Munich.
- Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation
- Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-08-29 (All new papers)
- NEP-ENE-2011-08-29 (Energy Economics)
- NEP-ENV-2011-08-29 (Environmental Economics)
- NEP-RES-2011-08-29 (Resource Economics)
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