Depletion and development: natural resource supply with endogenous field opening
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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