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Optimal Management of Strategic Reserves of Nonrenewable Natural Resources

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  • Eric Bahel

Abstract

This paper studies the stockpiling issue for an oil importing country that is likely to suffer embargoes, the occurrence and duration of which are uncertain. I show the existence of a decreasing reserves path that the country wants to attain in order to hedge against these disruptions. Allowing the importing country to invest in R&D in order to free itself from the embargo threat, I determine the optimal effort that should be engaged in research. The incentive to develop a backstop is shown to increase with the depletion of the reserves.

Suggested Citation

  • Eric Bahel, 2010. "Optimal Management of Strategic Reserves of Nonrenewable Natural Resources," Working Papers e07-27, Virginia Polytechnic Institute and State University, Department of Economics.
  • Handle: RePEc:vpi:wpaper:e07-27
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    File URL: ftp://repec.econ.vt.edu/Papers/Bahel/paper_oil%20reserves_WP.pdf
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    References listed on IDEAS

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    1. Arye L. Hillman & Ngo Van Long, 1983. "Pricing and Depletion of an Exhaustible Resource When There is Anticipation of Trade Disruption," The Quarterly Journal of Economics, Oxford University Press, vol. 98(2), pages 215-233.
    2. Bergstrom, Clas & Loury, Glenn C & Persson, Mats, 1985. "Embargo Threats and the Management of Emergency Reserves," Journal of Political Economy, University of Chicago Press, vol. 93(1), pages 26-42, February.
    3. James D. Hamilton, 2009. "Understanding Crude Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 179-206.
    4. GĂ©rard Gaudet, 2007. "Natural resource economics under the rule of Hotelling," Canadian Journal of Economics, Canadian Economics Association, vol. 40(4), pages 1033-1059, November.
    5. Loury, Glenn C, 1983. "The Welfare Effects of Intermittent Interruptions of Trade," American Economic Review, American Economic Association, vol. 73(2), pages 272-277, May.
    6. Harold Hotelling, 1931. "The Economics of Exhaustible Resources," Journal of Political Economy, University of Chicago Press, vol. 39, pages 137-137.
    7. Brian D. Wright & Jeffrey C. Williams, 1982. "The Roles of Public and Private Storage in Managing Oil Import Disruptions," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 341-353, Autumn.
    8. Partha Dasgupta & Geoffrey Heal, 1974. "The Optimal Depletion of Exhaustible Resources," Review of Economic Studies, Oxford University Press, vol. 41(5), pages 3-28.
    9. Tao Wu & Andrew H. McCallum, 2005. "Do oil futures prices help predict future oil prices?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue dec30.
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    Cited by:

    1. Nkuiya, Bruno, 2015. "Transboundary pollution game with potential shift in damages," Journal of Environmental Economics and Management, Elsevier, vol. 72(C), pages 1-14.
    2. Zhang, Xiao-Bing, 2014. "Strategic Carbon Taxation and Energy Pricing: The Role of Innovation," Working Papers in Economics 589, University of Gothenburg, Department of Economics.
    3. Salant, Stephen W. & Yu, Xueying, 2013. "The Effect of Stochastic Oscillations in Property Rights Regimes on Forest Output in China," Discussion Papers dp-13-08, Resources For the Future.
    4. Salant, Stephen W. & Yu, Xueying, 2016. "Forest loss, monetary compensation, and delayed re-planting: The effects of unpredictable land tenure in China," Journal of Environmental Economics and Management, Elsevier, vol. 78(C), pages 49-66.

    More about this item

    Keywords

    imports; nonrenewable resource; random embargoes; strategic reserves.;

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