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A Test of the Theory of Nonrenewable Resources - Controlling for Exploration and Market Power

Author

Listed:
  • Malischek, Raimund

    (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI))

  • Tode, Christian

    (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI))

Abstract

Despite the central role of the Hotelling model within the theory of nonrenewable resources, tests of the model are rarely found. If existent, these tests tend to ignore two key features, namely market power and exploration. We therefore suggest an extension of the basic Hotelling framework to incorporate exploration activity and market power and propose an implicit price behavior test of the model to indicate whether firms undergo inter-temporal optimization. When applied to a newly constructed data set for the uranium mining industry, the null hypothesis of the firm optimizing inter-temporally is rejected in all settings. However, parameter estimates of the model still yield valuable information on cost structure, resource scarcity and market power. Our results suggest that the shadow price of the resource in situ is comparably small and may be overshadowed by market power, which may serve as an explanation for the firm failing to optimize inter-temporally.

Suggested Citation

  • Malischek, Raimund & Tode, Christian, 2015. "A Test of the Theory of Nonrenewable Resources - Controlling for Exploration and Market Power," EWI Working Papers 2015-1, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    • Handle: RePEc:ris:ewikln:2015_001
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    File URL: https://www.ewi.uni-koeln.de/cms/wp-content/uploads/2015/12/EWI_WP_15_01_Test_Theory_Nonrenewable_Resources.pdf
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    Cited by:

    1. Roman Mendelevitch & Thanh Thien Dang, 2016. "Nuclear Power and the Uranium Market: Are Reserves and Resources Sufficient?," DIW Roundup: Politik im Fokus 98, DIW Berlin, German Institute for Economic Research.

    More about this item

    Keywords

    hotelling rule; resource economics; resource scarcity; dynamic optimization; exploration; market power; Hausman Test;
    All these keywords.

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L72 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Other Nonrenewable Resources
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices

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