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The Economics of Peak Oil

  • Holland, Stephen

    ()

    (University of North Carolina at Greensboro, Department of Economics)

“Peak oil” refers to the future decline in world production of crude oil and to the accompanying potentially calamitous effects. The peak oil literature typically rejects economic analysis. This chapter, following Holland (2008), argues that economic analysis is indeed appropriate for analyzing oil scarcity since standard economic models can replicate the observed peaks in oil production. Moreover, the emphasis on peak oil is misplaced since peaking is not a good indicator of scarcity, peak oil techniques are overly simplistic, the catastrophes predicted by the peak oil literature are unlikely, and the literature does not contribute to correcting identified market failures. Efficiency of oil markets could be improved by instead focusing on remedying market failures such as excessive private discount rates, environmental externalities, market power, insufficient innovation incentives, incomplete futures markets, and insecure property rights.

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File URL: http://bae.uncg.edu/assets/research/econwp/2011/11-13.pdf
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Paper provided by University of North Carolina at Greensboro, Department of Economics in its series Working Papers with number 11-13.

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Length: 16 pages
Date of creation: 02 Aug 2011
Date of revision:
Handle: RePEc:ris:uncgec:2011_013
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Phone: (336) 334-5463
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Web page: http://www.uncg.edu/bae/econ/
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  1. Jeffrey A. Krautkraemer, 1998. "Nonrenewable Resource Scarcity," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 2065-2107, December.
  2. Stephen P. Holland, 2008. "Modeling Peak Oil," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 61-80.
  3. 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.
  4. Brown, Gardner M, Jr & Field, Barry C, 1978. "Implications of Alternative Measures of Natural Resource Scarcity," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages 229-43, April.
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