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A Fallacy in the ANWR Drilling Debate: A Lesson on Scarcity Rents and Intertemporal Pricing under Different Market Structures

Listed author(s):
  • Coats R. Morris

    (Nicholls State University)

  • Pecquet Gary

    (Central Michigan University)

  • Sanders Shane D.

    (Nicholls State University)

It is common knowledge that oil discovered today, or that is newly allowed to be developed, has no effect on prices until reaching the market. However, economic theory does not support common knowledge on this issue. By lowering the value of holding oil for future sale, a future oil supply increase makes it more profitable for firms to produce and sell oil presently. Under three distinct market structures, we use a two-period model to show students that the resulting increase in present supply decreases the present price of oil. Production decisions in the absence of scarcity rents are also discussed.

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File URL: https://www.degruyter.com/view/j/jioe.2009.4.1/jioe.2009.4.1.1029/jioe.2009.4.1.1029.xml?format=INT
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Article provided by De Gruyter in its journal Journal of Industrial Organization Education.

Volume (Year): 4 (2010)
Issue (Month): 1 (January)
Pages: 1-12

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Handle: RePEc:bpj:jioedu:v:4:y:2010:i:1:n:2
Contact details of provider: Web page: https://www.degruyter.com

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  1. Solow, Robert M, 1974. "The Economics of Resources or the Resources of Economics," American Economic Review, American Economic Association, vol. 64(2), pages 1-14, May.
  2. Conrad, Jon M. & Kotani, Koji, 2005. "When to drill? Trigger prices for the Arctic National Wildlife Refuge," Resource and Energy Economics, Elsevier, vol. 27(4), pages 273-286, November.
  3. Lee, Dwight R, 1978. "Price Controls, Binding Constraints, and Intertemporal Economic Decision Making," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages 293-301, April.
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