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Depletion and development: natural resource supply with endogenous field opening

Listed author(s):
  • Anthony J. 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
Handle: RePEc:oxf:wpaper:554
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  2. 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.
  3. Lewis, Tracy R, 1982. "Sufficient Conditions for Extracting Least Cost Resource First," Econometrica, Econometric Society, vol. 50(4), pages 1081-1083, July.
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  7. Hans-Werner Sinn, 2008. "Public policies against global warming: a supply side approach," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 15(4), pages 360-394, August.
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  9. Miller, Merton H & Upton, Charles W, 1985. "A Test of the Hotelling Valuation Principle," Journal of Political Economy, University of Chicago Press, vol. 93(1), pages 1-25, February.
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  11. 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.
  12. Amigues, Jean-Pierre & Favard, Pascal & Gaudet, Gerard & Moreaux, Michel, 1998. "On the Optimal Order of Natural Resource Use When the Capacity of the Inexhaustible Substitute Is Limited," Journal of Economic Theory, Elsevier, vol. 80(1), pages 153-170, May.
  13. Hans-Werner Sinn, 2007. "Public Policies against Global Warming," NBER Working Papers 13454, National Bureau of Economic Research, Inc.
  14. James L. Smith, 2009. "World Oil: Market or Mayhem?," Journal of Economic Perspectives, American Economic Association, vol. 23(3), pages 145-164, Summer.
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  16. 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.
  17. 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.
  18. Harry F. Campbell, 1980. "The Effect of Capital Intensity on the Optimal Rate of Extraction of a Mineral Deposit," Canadian Journal of Economics, Canadian Economics Association, vol. 13(2), pages 349-356, May.
  19. 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.
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