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Optimal Management of Strategic Reserves of Nonrenewable Natural Resources

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Author Info

  • Eric Bahel

Abstract

This paper studies the stockpiling issue for an oil importing country that is likely to suffer embargoes, the occurrence and duration of which are uncertain. I show the existence of a decreasing reserves path that the country wants to attain in order to hedge against these disruptions. Allowing the importing country to invest in R&D in order to free itself from the embargo threat, I determine the optimal effort that should be engaged in research. The incentive to develop a backstop is shown to increase with the depletion of the reserves.

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File URL: ftp://repec.econ.vt.edu/Papers/Bahel/paper_oil%20reserves_WP.pdf
File Function: First version, 2010
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Bibliographic Info

Paper provided by Virginia Polytechnic Institute and State University, Department of Economics in its series Working Papers with number e07-27.

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Length: 39 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:vpi:wpaper:e07-27

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Related research

Keywords: imports; nonrenewable resource; random embargoes; strategic reserves.;

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References

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  1. Tao Wu & Andrew McCallum, 2005. "Do oil futures prices help predict future oil prices?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue dec30.
  2. Hillman, Arye L & Long, Ngo Van, 1983. "Pricing and Depletion of an Exhaustible Resource When There Is Anticipation of Trade Disruption," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 215-33, May.
  3. Bergstrom, Clas & Loury, Glenn C & Persson, Mats, 1985. "Embargo Threats and the Management of Emergency Reserves," Journal of Political Economy, University of Chicago Press, vol. 93(1), pages 26-42, February.
  4. GĂ©rard Gaudet, 2007. "Natural resource economics under the rule of Hotelling," Canadian Journal of Economics, Canadian Economics Association, vol. 40(4), pages 1033-1059, November.
  5. Loury, Glenn C, 1983. "The Welfare Effects of Intermittent Interruptions of Trade," American Economic Review, American Economic Association, vol. 73(2), pages 272-77, May.
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Cited by:
  1. Zhang, Xiao-Bing, 2014. "Strategic Carbon Taxation and Energy Pricing: The Role of Innovation," Working Papers in Economics 589, University of Gothenburg, Department of Economics.

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