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On equilibrium in resource markets with scale economies and stochastic prices

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  • Mason, Charles F.

Abstract

In this paper, I show the existence and the characteristics of equilibrium in a non-renewable resource market where extraction costs are non-convex and market price is subject to stochastic shocks, an empirically relevant setting. In my model firms may be motivated to hold inventories to facilitate production smoothing, which allows them to continue producing at a smooth pace at any instant when extraction ceases, e.g. when reserves are exhausted. This aspect of the model then supports a competitive equilibrium in the presence of non-convex costs. Casual empirical evidence is provided that supports the central features of my model for a variety of non-renewable resources, lending credence to the explanation for equilibrium I propose.

Suggested Citation

  • Mason, Charles F., 2012. "On equilibrium in resource markets with scale economies and stochastic prices," Journal of Environmental Economics and Management, Elsevier, vol. 64(3), pages 288-300.
    • Handle: RePEc:eee:jeeman:v:64:y:2012:i:3:p:288-300
    DOI: 10.1016/j.jeem.2011.12.004
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    Cited by:

    1. Huhtala, Anni & Ropponen, Olli, 2020. "Resource and Environmental Policies for the Mining Industry: What Should Governments Do About the Increasing Social and Environmental Risks?," Working Papers 137, VATT Institute for Economic Research.
    2. Antoine Bommier & Lucas Bretschger & François Grand, 2017. "Existence of equilibria in exhaustible resource markets with economies of scale and inventories," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 63(3), pages 687-721, March.

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    More about this item

    Keywords

    Resource economics; Inventories; Stochastic dynamic optimization;
    All these keywords.

    JEL classification:

    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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