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Extracting Resource Deposits of Unknown Size: Optimal Order


  • Murray C. Kemp
  • Ngo Van Long


The optimal order of extracting resource deposits of unknown size depends on the informational characteristics of the extraction process. This paper fills the gap between two strands of literature. The first strand is about the optimal extraction of single reserve under stock-size uncertainty. The second strand is about the optimal order of extraction of deposits of known sizes. Our emphasis on the premium for resolution of uncertainty complements Solow and Wan's shadow surcharge when extraction moves from a low-cost deposit to a high-cost one. Copyright 2009 The Authors. Journal Compilation 2009 Verein für Socialpolitik and Blackwell Publishing Ltd.

Suggested Citation

  • Murray C. Kemp & Ngo Van Long, 2009. "Extracting Resource Deposits of Unknown Size: Optimal Order," German Economic Review, Verein für Socialpolitik, vol. 10, pages 401-421, November.
  • Handle: RePEc:bla:germec:v:10:y:2009:i::p:401-421

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    References listed on IDEAS

    1. Amigues, Jean-Pierre & Favard, Pascal & Gaudet, Gerard & Moreaux, Michel, 1998. "On the Optimal Order of Natural Resource Use When the Capacity of the Inexhaustible Substitute Is Limited," Journal of Economic Theory, Elsevier, vol. 80(1), pages 153-170, May.
    2. Robson, Arthur J., 1979. "Sequential exploitation of uncertain deposits of a depletable natural resource," Journal of Economic Theory, Elsevier, vol. 21(1), pages 88-110, August.
    3. Murray C. Kemp & Ngo Van Long, 2007. "Extracting Several Resource Deposits of Unknown Size: Optimal Order," CIRANO Working Papers 2007s-10, CIRANO.
    4. Hartwick, John M, 1978. "Exploitation of Many Deposits of an Exhaustible Resource," Econometrica, Econometric Society, vol. 46(1), pages 201-217, January.
    5. Kumar, Ramesh C., 2005. "How to eat a cake of unknown size: A reconsideration," Journal of Environmental Economics and Management, Elsevier, vol. 50(2), pages 408-421, September.
    6. Kemp, Murray C & Long, Ngo Van, 1980. "On Two Folk Theorems Concerning the Extraction of Exhaustible Resources," Econometrica, Econometric Society, vol. 48(3), pages 663-673, April.
    7. Long, Ngo Van, 1975. "Resource extraction under the uncertainty about possible nationalization," Journal of Economic Theory, Elsevier, vol. 10(1), pages 42-53, February.
    8. Gérard Gaudet, 2007. "Natural resource economics under the rule of Hotelling," Canadian Journal of Economics, Canadian Economics Association, vol. 40(4), pages 1033-1059, November.
    9. Wirl, Franz, 1988. "Resource extraction of imperfect substitutes," Energy Economics, Elsevier, vol. 10(3), pages 242-248, July.
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    Cited by:

    1. Bjarne S. Jensen, 2009. "Dynamic Extensions of the Solow Growth Model (1956): Editorial," German Economic Review, Verein für Socialpolitik, vol. 10, pages 378-383, November.

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