Optimal Management of Strategic Reserves of Nonrenewable Natural Resources
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.
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- Hillman, Arye L & Long, Ngo Van, 1983. "Pricing and Depletion of an Exhaustible Resource When There Is Anticipation of Trade Disruption," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 215-33, May.
- Loury, Glenn C, 1983. "The Welfare Effects of Intermittent Interruptions of Trade," American Economic Review, American Economic Association, vol. 73(2), pages 272-77, May.
- Tao Wu & Andrew McCallum, 2005. "Do oil futures prices help predict future oil prices?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue dec30.
- 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.
- Gérard Gaudet, 2007. "Natural resource economics under the rule of Hotelling," Canadian Journal of Economics, Canadian Economics Association, vol. 40(4), pages 1033-1059, November.
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