On equilibrium in resource markets with scale economies and stochastic prices
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.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 64 (2012)
Issue (Month): 3 ()
|Contact details of provider:|| Web page: http://www.elsevier.com/locate/inca/622870|
References listed on IDEAS
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.:
- Williams,Jeffrey C. & Wright,Brian D., 1991.
"Storage and Commodity Markets,"
Cambridge University Press, number 9780521326162, November.
- Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, December.
- Dixit, A., 1988.
"Entry And Exit Decisions Under Uncertainty,"
91, Princeton, Department of Economics - Financial Research Center.
- Asheim, G.B., 1989.
"Contestability In A Resource Market With Non-Convex Costs,"
02-89, Norwegian School of Economics and Business Administration-.
- Asheim, Geir B, 1992. " Contestability in a Resource Market with Non-convex Costs," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(4), pages 609-18.
- Fisher, Anthony C. & Karp, Larry, 1991.
"Nonconvexity, Efficiency and Equilibrium in Exhaustible Resource Depletion,"
Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series
qt9hr4w60m, Department of Agricultural & Resource Economics, UC Berkeley.
- Anthony Fisher & Larry Karp, 1993. "Nonconvexity, efficiency and equilibrium in exhaustible resource depletion," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 3(1), pages 97-106, February.
- Pindyck, Robert S, 1980. "Uncertainty and Exhaustible Resource Markets," Journal of Political Economy, University of Chicago Press, vol. 88(6), pages 1203-25, December.
- Pindyck, Robert S., 1990.
"Inventories and the short-run dynamics of commodity prices,"
3133-90., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Robert S. Pindyck, 1994. "Inventories and the Short-Run Dynamics of Commodity Prices," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 141-159, Spring.
- Robert S. Pindyck, 1990. "Inventories and the Short-Run Dynamics of Commodity Prices," NBER Working Papers 3295, National Bureau of Economic Research, Inc.
- Cairns, Robert D, 1991. " On Non-convex Costs and Dynamic Consistency in an Exhaustible-Resource Market," Scandinavian Journal of Economics, Wiley Blackwell, vol. 93(1), pages 89-100.
- Pindyck, Robert S, 1982. "Adjustment Costs, Uncertainty, and the Behavior of the Firm," American Economic Review, American Economic Association, vol. 72(3), pages 415-27, June.
- Mason, Charles F., 2001. "Nonrenewable Resources with Switching Costs," Journal of Environmental Economics and Management, Elsevier, vol. 42(1), pages 65-81, July.
- Martin B. Zimmerman, 1977. "Modeling Depletion in a Mineral Industry: The Case of Coal," Bell Journal of Economics, The RAND Corporation, vol. 8(1), pages 41-65, Spring.
- Bresnahan, Timothy F & Suslow, Valerie Y, 1985. "Inventories as an Asset: The Volatility of Copper Prices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(2), pages 409-24, June.
- Lozada, Gabriel A., 1996. "Existence of equilibria in exhaustible resource industries Nonconvexities and discrete vs. continuous time," Journal of Economic Dynamics and Control, Elsevier, vol. 20(1-3), pages 433-444.
- Hartwick, John M. & Kemp, Murray C. & Van Long, Ngo, 1986.
"Set-up costs and theory of exhaustible resources,"
Journal of Environmental Economics and Management,
Elsevier, vol. 13(3), pages 212-224, September.
- Avinash Dixit, 1989. "Hysteresis, Import Penetration, and Exchange Rate Pass-Through," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 205-228.
- Eswaran, Mukesh & Lewis, Tracy R & Heaps, Terry, 1983. "On the Nonexistence of Market Equilibria in Exhaustible Resource Markets with Decreasing Costs," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 154-67, February.
- Lucas, Robert E, Jr & Prescott, Edward C, 1971. "Investment Under Uncertainty," Econometrica, Econometric Society, vol. 39(5), pages 659-81, September.
- Pindyck, Robert S, 1993. "A Note on Competitive Investment under Uncertainty," American Economic Review, American Economic Association, vol. 83(1), pages 273-77, March.
- Robert Cairns, 2008. "Exhaustible Resources, Non-Convexity and Competitive Equilibrium," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 40(2), pages 177-193, June.
- Carolyn Fischer, 2005. "Competition in Markets for Depletable Resources with Setup Costs," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 30(3), pages 243-257, 03.
- Mason, Charles F., 1989. "Exploration information and AEC regulation of the domestic uranium industry," Journal of Economic Dynamics and Control, Elsevier, vol. 13(3), pages 421-448, July.
- Andrew B. Abel, 1985. "Inventories, Stock-Outs and Production Smoothing," Review of Economic Studies, Oxford University Press, vol. 52(2), pages 283-293.
- Slade, Margaret E., 1988. "Grade selection under uncertainty: Least cost last and other anomalies," Journal of Environmental Economics and Management, Elsevier, vol. 15(2), pages 189-205, June.
When requesting a correction, please mention this item's handle: RePEc:eee:jeeman:v:64:y:2012:i:3:p:288-300. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.