On Equilibrium in Resource Markets with Scale Economies and Stochastic Prices
I consider a non-renewable resource market where extraction costs are non-convex and market price is subject to stochastic shocks. While competitive equilibrium cannot exist if costs are non-convex and demand is deterministic, equilibrium can be supported in the context of stochastic demand. The crucial distinction is that the noisy environment can create an incentive for firms to hold inventories. Inventories allow firms to continue producing at a smooth pace at any instant when extraction ceases, e.g. when reserves are exhausted. Accordingly, there are no abrupt changes in the expected price path, in contrast to the deterministic variant of the model.
|Date of creation:||2012|
|Date of revision:|
|Contact details of provider:|| Postal: Manor Road, Oxford, OX1 3UQ|
Web page: http://www.oxcarre.ox.ac.uk/
More information through EDIRC
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.:
- 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.
- 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.
- Dixit, A., 1988.
"Entry And Exit Decisions Under Uncertainty,"
91, Princeton, Department of Economics - Financial Research Center.
- 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.
- 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.
- Asheim, G.B., 1989. "Contestability In A Resource Market With Non-Convex Costs," Papers 02-89, Norwegian School of Economics and Business Administration-.
- Anthony Fisher & Larry Karp, 1993.
"Nonconvexity, efficiency and equilibrium in exhaustible resource depletion,"
Environmental & Resource Economics,
European Association of Environmental and Resource Economists, vol. 3(1), pages 97-106, February.
- 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.
- John Hartwick & Murray Kemp & Ngo van Long, 1980.
"Set-up Costs and Theory of Exhaustible Resources,"
412, Queen's University, Department of Economics.
- Pindyck, Robert S, 1993. "A Note on Competitive Investment under Uncertainty," American Economic Review, American Economic Association, vol. 83(1), pages 273-77, March.
- 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.
- Carolyn Fischer, 2005. "Competition in Markets for Depletable Resources with Setup Costs," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 30(3), pages 243-257, 03.
- Robert Cairns, 2008. "Exhaustible Resources, Non-Convexity and Competitive Equilibrium," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 40(2), pages 177-193, June.
- 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.
- Andrew B. Abel, 1985. "Inventories, Stock-Outs and Production Smoothing," Review of Economic Studies, Oxford University Press, vol. 52(2), pages 283-293.
- Lucas, Robert E, Jr & Prescott, Edward C, 1971. "Investment Under Uncertainty," Econometrica, Econometric Society, vol. 39(5), pages 659-81, September.
- Pindyck, Robert S, 1980. "Uncertainty and Exhaustible Resource Markets," Journal of Political Economy, University of Chicago Press, vol. 88(6), pages 1203-25, December.
- Williams,Jeffrey C. & Wright,Brian D., 1991.
"Storage and Commodity Markets,"
Cambridge University Press, number 9780521326162, june. pag.
- Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, June.
- 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.
- 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.
- 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.
- 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.
When requesting a correction, please mention this item's handle: RePEc:oxf:oxcrwp:073. 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: (Celia Kingham)
If references are entirely missing, you can add them using this form.