The Economics of Peak Oil
Abstract“Peak oil” refers to the future decline in world production of crude oil and to the accompanying potentially calamitous effects. The peak oil literature typically rejects economic analysis. This chapter, following Holland (2008), argues that economic analysis is indeed appropriate for analyzing oil scarcity since standard economic models can replicate the observed peaks in oil production. Moreover, the emphasis on peak oil is misplaced since peaking is not a good indicator of scarcity, peak oil techniques are overly simplistic, the catastrophes predicted by the peak oil literature are unlikely, and the literature does not contribute to correcting identified market failures. Efficiency of oil markets could be improved by instead focusing on remedying market failures such as excessive private discount rates, environmental externalities, market power, insufficient innovation incentives, incomplete futures markets, and insecure property rights.
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Bibliographic InfoPaper provided by University of North Carolina at Greensboro, Department of Economics in its series Working Papers with number 11-13.
Length: 16 pages
Date of creation: 02 Aug 2011
Date of revision:
Depletable resources; Hotelling; peak oil;
Find related papers by JEL classification:
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-08-15 (All new papers)
- NEP-CWA-2011-08-15 (Central & Western Asia)
- NEP-ENE-2011-08-15 (Energy Economics)
- NEP-ENV-2011-08-15 (Environmental Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Smith, James L., 2012.
"On the portents of peak oil (and other indicators of resource scarcity),"
Elsevier, vol. 44(C), pages 68-78.
- James L. Smith, 2010. "On The Portents of Peak Oil (And Other Indicators of Resource Scarcity)," Working Papers 1010, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
- 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.
- Pindyck, Robert S, 1978. "The Optimal Exploration and Production of Nonrenewable Resources," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 841-61, October.
- Stephen P. Holland, 2008. "Modeling Peak Oil," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 61-80.
- Jeffrey A. Krautkraemer, 1998. "Nonrenewable Resource Scarcity," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 2065-2107, December.
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