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Depletion and development: natural resource supply with endogenous field opening

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  • Anthony J. Venables

Abstract

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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  • Anthony J. Venables, 2011. "Depletion and development: natural resource supply with endogenous field opening," Economics Series Working Papers 554, University of Oxford, Department of Economics.
    • Handle: RePEc:oxf:wpaper:554
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    Cited by:

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    3. Rodriguez Acosta, Mauricio, 2018. "Resource management under endogenous risk of expropriation," Resource and Energy Economics, Elsevier, vol. 52(C), pages 1-17.
    4. van den Bremer, Ton & van der Ploeg, Frederick & Wills, Samuel, 2016. "The Elephant In The Ground: Managing Oil And Sovereign Wealth," European Economic Review, Elsevier, vol. 82(C), pages 113-131.
    5. van der Meijden, Gerard & van der Ploeg, Frederick & Withagen, Cees, 2015. "International capital markets, oil producers and the Green Paradox," European Economic Review, Elsevier, vol. 76(C), pages 275-297.
    6. Julien Daubanes & Pierre Lasserre, 2014. "Dispatching after Producing: The Supply of Non-Renewable Resources," CIRANO Working Papers 2014s-42, CIRANO.
    7. Peter R. Hartley & Kenneth B. Medlock III, 2017. "The Valley of Death for New Energy Technologies," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    8. Gerhard Toews & Alexander Naumov, 2015. "The Relationship Between Oil Price and Costs in the Oil and Gas Industry," Economics Series Working Papers OxCarre Research Paper 15, University of Oxford, Department of Economics.
    9. Julien Daubanes & Pierre Lasserre, 2019. "The supply of non-renewable resources," Canadian Journal of Economics, Canadian Economics Association, vol. 52(3), pages 1084-1111, August.
    10. Weichenrieder, Alfons, 2017. "Should the Global Community Welcome or Mourn New Oil Discoveries?," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168089, Verein für Socialpolitik / German Economic Association.
    11. François Castonguay & Pierre Lasserre, 2016. "Resource Agency Relationship with Privately Known Exploration and Extraction Costs," CIRANO Working Papers 2016s-56, CIRANO.
    12. van der Ploeg, Frederick, 2020. "Race to burn the last ton of carbon and the risk of stranded assets," European Journal of Political Economy, Elsevier, vol. 64(C).
    13. Joseph, Mawejje & Lawrence, Bategeka, 2013. "Accelerating Growth and Maintaining Intergenerational Equity Using Oil Resources in Uganda," Research Series 167526, Economic Policy Research Centre (EPRC).
    14. Taran Fæhn, Cathrine Hagem, Lars Lindholt, Ståle Mæland, and Knut Einar Rosendahl, 2017. "Climate policies in a fossil fuel producing country demand versus supply side policies," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    15. Sylwia Bialek & Alfons J. Weichenrieder, 2022. "Should the global community welcome new oil discoveries?," Journal of Economics, Springer, vol. 137(3), pages 255-278, December.
    16. Roberto Ferreira da Cunha & Antoine Missemer, 2020. "The Hotelling rule in non‐renewable resource economics: A reassessment," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(2), pages 800-820, May.
    17. Frederick van der Ploeg & Anthony J. Venables, 2012. "Natural Resource Wealth: The Challenge of Managing a Windfall," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 315-337, July.
    18. Rodriguez Acosta, Mauricio, 2016. "Essays in political economy and resource economic : A macroeconomic approach," Other publications TiSEM 1e39ef1b-43a2-4f95-892c-6, Tilburg University, School of Economics and Management.
    19. van den Bijgaart, Inge & Rodriguez, Mauricio, 2020. "Closing wells; fossil exploration and abandonment in the energy transition," Working Papers in Economics 789, University of Gothenburg, Department of Economics.
    20. Florian Habermacher, 2016. "Externalities in Risky Resource Markets - Optimal Taxes, Leakage and Divestment," CESifo Working Paper Series 5865, CESifo.
    21. Rodriguez, Mauricio & Smulders, Sjak, 2022. "Dynamic resource management under weak property rights: A tale of thieves and trespassers," Journal of Environmental Economics and Management, Elsevier, vol. 112(C).
    22. Konrad, Kai A. & Thum, Marcel, 2023. "Elusive effects of export embargoes for fossil energy resources," Energy Economics, Elsevier, vol. 117(C).
    23. Orlov, Anton, 2016. "Effects of higher domestic gas prices in Russia on the European gas market: A game theoretical Hotelling model," Applied Energy, Elsevier, vol. 164(C), pages 188-199.

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    More about this item

    Keywords

    Natural resource; Depletion; Hotelling; Fossil fuel; Carbon tax;
    All these keywords.

    JEL classification:

    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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