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Fundamental Economics of Depletable Energy Supply

  • Toman, Michael
  • Krautkraemer, Jeffrey

In this paper, we first present and discuss the basic logic underlying all neoclassical economic theories of “optimal” energy supply: maximization of the present value of some stream of economic returns. We then discuss how the economic theory of optimal resource depletion has evolved since Hotelling’s classic 1931 article. We also consider the power of the theory to support improved empirical understanding of actual behavior. Our discussion of empirical literature indicates that this work has so far provided only limited empirical understanding.

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Paper provided by Resources For the Future in its series Discussion Papers with number dp-03-01.

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Date of creation: 08 Dec 2003
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Handle: RePEc:rff:dpaper:dp-03-01
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  1. Cairns, Robert D. & Lasserre, Pierre, 1991. "The role of investment in multiple-deposit extraction: Some results and remaining puzzles," Journal of Environmental Economics and Management, Elsevier, vol. 21(1), pages 52-66, July.
  2. Geoffrey Heal, 1976. "The Relationship Between Price and Extraction Cost for a Resource with a Backstop Technology," Bell Journal of Economics, The RAND Corporation, vol. 7(2), pages 371-378, Autumn.
  3. Cairns, Robert D, 1990. " The Economics of Exploration for Non-renewable Resources," Journal of Economic Surveys, Wiley Blackwell, vol. 4(4), pages 361-95.
  4. Lasserre, P., 1985. "Capacity Choice by Mines," Cahiers de recherche 8501, Universite de Montreal, Departement de sciences economiques.
  5. Swierzbinski, Joseph E & Mendelsohn, Robert, 1989. "Exploration and Exhaustible Resources: The Microfoundations of Aggregate Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(1), pages 175-86, February.
  6. Adelman, M A, 1990. "Mineral Depletion, with Special Reference to Petroleum," The Review of Economics and Statistics, MIT Press, vol. 72(1), pages 1-10, February.
  7. Epple, Dennis & Londregan, John, 1993. "Strategies for modeling exhaustible resource," Handbook of Natural Resource and Energy Economics, in: A. V. Kneese† & J. L. Sweeney (ed.), Handbook of Natural Resource and Energy Economics, edition 1, volume 3, chapter 22, pages 1077-1107 Elsevier.
  8. Farzin, Y Hossein, 1984. "The Effect of the Discount Rate on Depletion of Exhaustible Resources," Journal of Political Economy, University of Chicago Press, vol. 92(5), pages 841-51, October.
  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.
  10. Slade, Margaret E., 1982. "Trends in natural-resource commodity prices: An analysis of the time domain," Journal of Environmental Economics and Management, Elsevier, vol. 9(2), pages 122-137, June.
  11. Pindyck, Robert S, 1978. "The Optimal Exploration and Production of Nonrenewable Resources," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 841-61, October.
  12. Walls, Margaret A., 1992. "Modeling and forecasting the supply of oil and gas : A survey of existing approaches," Resources and Energy, Elsevier, vol. 14(3), pages 287-309, September.
  13. Margaret A. Walls, 1994. "Using a 'Hybrid' Approach to Model Oil and Gas Supply: A Case Study of the Gulf of Mexico Outer Continental Shelf," Land Economics, University of Wisconsin Press, vol. 70(1), pages 1-19.
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