IDEAS home Printed from
   My bibliography  Save this paper

Do markets underprice natural - resource commodities?


  • Slade, Margaret E.


The author examines the efficiency and equity of a market allocation of exhaustible resources and assesses the behavior of scarcity measures, such as relative price and rental rates. She finds little evidence of scarcity or impending shortage. Indeed, the evidence points to falling prices and rents for many commodities. Do markets send the wrong signals? Are resource commodities systematically underpriced? Her conclusions are not completely optimistic. The authors analysis reveals many market failures, any of which would result in inappropriate resource commodity pricing. But,with one exception, she finds no systematic tendency to underprice. The exception concerns the environmental externalities associated with the production and use of natural-resource commodities. Similar externalities lead to underpricing and overuse of all commodities. Mineral commodities, however, are responsible for a large fraction of the pollution that is currently generated, so their underpricing is particularly significant. The market failures associated with common-property and environmental resources can cause market prices to be lower than shadow prices or marginal values. They cannot, however, cause relative resource prices to fall. Falling prices would be associated with a relaxation of environmental standards and a move away from full-social-cost pricing. The tendency, however, is towards increased awareness of environmental damage and increased willingness to pay for its associated costs. Nevertheless, the prices of many natural-resource commodities have fallen in real terms. Factors causing prices to decrease are not associated with market failure, and therefore do not support interference with the market mechanism. Innovations that lower mining and processing costs, discoveries that increase resource stocks, and the provision of lower-cost substitutes are all features of efficiently operating markets.

Suggested Citation

  • Slade, Margaret E., 1992. "Do markets underprice natural - resource commodities?," Policy Research Working Paper Series 962, The World Bank.
  • Handle: RePEc:wbk:wbrwps:962

    Download full text from publisher

    File URL:
    Download Restriction: no


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Abdel M. Zellou & John T. Cuddington, 2012. "Trends and Super Cycles in Crude Oil and Coal Prices," Working Papers 2012-10, Colorado School of Mines, Division of Economics and Business.


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:962. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.