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Depletion and development: natural resource supply with endogenous field opening

  • Tony Venables

This paper develops a model in which supply of a non-renewable resource can adjust through two margins: the rate of depletion and the rate of field opening.� Faster depletion of existing fields means that less of the resource can ultimately be extracted, and optimal depletion of open fields follows a (modified) Hotelling rule.� Opening a new field involves sinking a capital cost, and the timing of field opening is chosen to maximize the present value of the field.� Output dynamics depend on both depletion and field opening, and supply responses to price changes are studied.� In contrast to Hotelling, the long run equilibrium rate of growth of prices is independent of the rate of intereset, depending instead on characteristics of demand and geologically determined supply.

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File URL: http://www.economics.ox.ac.uk/materials/papers/5110/paper554.pdf
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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 554.

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Date of creation: 01 Jun 2011
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Handle: RePEc:oxf:wpaper:554
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Web page: http://www.economics.ox.ac.uk/
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  1. Amigues, J-P & Favard, P & Gaudet, G & Moreaux, M, 1996. "On the Optimal Order of Natural Resource Use When the Capacity of the Inexhaustible Substitute is Limited," Cahiers de recherche 9628, Universite de Montreal, Departement de sciences economiques.
  2. CHAKRAVORTY Ujjayant & MOREAUX Michel & TIDBALL Mabel, 2006. "Ordering the Extraction of Polluting Nonrenewable Resources," LERNA Working Papers 06.19.212, LERNA, University of Toulouse.
  3. 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.
  4. Holland, Stephen P., 2003. "Set-up costs and the existence of competitive equilibrium when extraction capacity is limited," Journal of Environmental Economics and Management, Elsevier, vol. 46(3), pages 539-556, November.
  5. Hans-Werner Sinn, 2008. "Public policies against global warming: a supply side approach," International Tax and Public Finance, Springer, vol. 15(4), pages 360-394, August.
  6. Hans-Werner Sinn, 2007. "Public Policies against Global Warming," CESifo Working Paper Series 2087, CESifo Group Munich.
  7. Fischer, Carolyn & Laxminarayan, Ramanan, 2005. "Sequential development and exploitation of an exhaustible resource: do monopoly rights promote conservation?," Journal of Environmental Economics and Management, Elsevier, vol. 49(3), pages 500-515, May.
  8. Chermak, Janie M. & Patrick, Robert H., 2002. "Comparing tests of the theory of exhaustible resources," Resource and Energy Economics, Elsevier, vol. 24(4), pages 301-325, November.
  9. Lewis, Tracy R, 1982. "Sufficient Conditions for Extracting Least Cost Resource First," Econometrica, Econometric Society, vol. 50(4), pages 1081-83, July.
  10. Nystad, Arild N., 1987. "Rate sensitivity and the optimal choice of production capacity of petroleum reservoirs," Energy Economics, Elsevier, vol. 9(1), pages 37-45, January.
  11. Livernois, John R & Uhler, Russell S, 1987. "Extraction Costs and the Economics of Nonrenewable Resources," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 195-203, February.
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