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Depletion and Development: Natural resounce supply with endogenous field opening

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  • Anthony Venables

Abstract

Supply of a non-renewable resource adjusts through two margins: the rate at which new fields are opened, and the rate of depletion of open fields. The paper combines these margins in a model in which there is a continuum of fields with varying capital costs. Opening a new field involves sinking a capital cost, and the date of opening is chosen to maximize the present value of the field. Depletion of each open field follows a Hotelling rule, modified by the fact that faster depletion reduces the amount that can ultimately be extracted. The paper studies the equilibrium paths of output and price. Under specific but reasonable assumptions on demand and the cost distribution of deposits it is found that the rate of growth of price is constant and independent of the rate of interest, depending instead on characteristics of demand and geology.

Suggested Citation

  • Anthony Venables, 2011. "Depletion and Development: Natural resounce supply with endogenous field opening," OxCarre Working Papers 062, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    • Handle: RePEc:oxf:oxcrwp:062
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    References listed on IDEAS

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    More about this item

    Keywords

    non-renewable resource; depletion; exhaustible; Hotelling; fossil fuel; carbon tax;
    All these keywords.

    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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