the pricing of durable exhaustible resources partial or total durability characterizes a large class of exhaustible resources hotelling s r percent rule will apply to a durable resource produced in a competitive market but will not apply if the resource is produced in a monopolistic market however the r percent rule does not mean that price is steadily rising it is shown that in general the competitive market price will fall initially as the stock in circulation increases and later will rise as the stock decreases and eventually depreciates toward zero after production ceases accounting for durability may thus help explain the u shaped long term price profiles observed for many resources 11 references 3 figures

nonrenewable resource scarcity nonrenewable resource theory often is summarized by hotelling s rule this paper reviews theoretical extensions and empirical investigations of resource extraction models observed data are often inconsistent with the hotelling rule suggesting that other characteristics of nonrenewable resource supply including exploration heterogeneous ore quality technological progress and capital investment are important determinants of the dynamic behavior of resource prices given the persistent recurrence of concern about nonrenewable resource scarcity measures of nonrenewable resource scarcity and the empirical evidence for the time trends of those measures are reviewed finally the implications of nonrenewable resource scarcity for economic growth are examined

competitive non linear pricing and bundling we examine the impact of multiproduct nonlinear pricing on profit consumer surplus and welfare in a duopoly when consumers buy all their products from one firm the one stop shopping model nonlinear pricing leads to higher profit and welfare but often lower consumer surplus than linear pricing by contrast in a unit demand model where consumers may buy one product from one firm and another product from another firm bundling generally acts to reduce profit and welfare and to boost consumer surplus in a more general model where consumers may buy from more than one firm and where consumers have elastic demands for each product nonlinear pricing has ambiguous effects compared with linear pricing nonlinear pricing tends to raise profit but harm consumer surplus when i demand is elastic ii there is substantial product differentiation iii there is substantial heterogeneity in consumer demand iv consumers face substantial shopping costs when visiting more than one firm and v a consumer s brand preference for one product is strongly correlated with her brand preference for another product nonlinear pricing is more likely to lead to welfare gains when i ii iv and v hold but iii does not

nonrenewable resources with switching costs abstract this paper considers a firm s decision to commence or to suspend extraction of a nonrenewable resource when there are start up or shut down costs for a given level of reserves the critical price that would cause an inactive mine to be opened exceeds the price that would induce an active mine to be closed as one would expect greater switching costs cause firms to be less inclined to change status this impact can be substantial even for modest switching costs possible implications of switching costs are considered including the potential for firms to abandon mines with economically valuable remaining reserves

a model of exhaustible resource exploitation with ricardian rent abstract the question of the optimal rate of development of an exhaustible resource such as a mine has long been a concern of resource economists however with few exceptions in the literature it has been implicitly assumed that orebodies are of uniform quality readily distinguished from their surroundings or else that the mining firm is able to choose the order of mining from sections of the mine which may vary in quality e g grade of ore while such simplifying assumptions have led to a rich array of conclusions they stand in contrast to the varying conditions facing the mining engineer in making cut off grade decisions this paper models a situation where because of orebody configurations the firm cannot choose to mine in order of grade an optimal cut off grade is obtained for each point of time of the mine s life in the case of a socially optimizing firm then in a special case the effects of monopoly and various types of mineral taxation are considered for the cut off grade decision and for ultimate recovery

empirical investigation of the long term movement of resource prices a preliminary report abstract this note reports the results of an investigation into the long run movements of natural resource prices and their relationship to interest rates and extraction costs the results do not support the equilibrium type hotelling rule but rather a more general asset market approach

compatibility and bundling of complementary goods in a duopoly this paper presents a simple model of compatibility and bundling in industries where consumers assemble several necessary components into a system that is close to their ideal the authors show that for a wide range of parameters firms will choose to produce compatible components but will offer discounts to consumers who purchase all components from the same firm however firms would be better off if they could commit not to provide such discounts furthermore the equilibrium tends to involve socially excessive bundling finally mixed bundling strategies tend to increase the range of parameters over which socially excessive standardization occurs copyright 1992 by blackwell publishing ltd

a new framework integrating environmental effects into technology evaluation this study aims to propose a framework considering both economic issues and environmental effects in technology evaluation in order to provide firms decision makers a useful reference in adopting technologies that will enable them to fulfill corporate social responsibilities and get competitive advantages at the same time recently the demands for technology evaluation have increased with the flourishing development of technology licensing technology transaction or joint venture on the one hand and with the pressing needs of environmental protection for human beings sustainable development on the other hand under such conditions it thus goes without saying that firms decision makers are propelled to take into account both economic benefits and environmental effects in evaluating technologies by choosing low or nonpolluting technologies for manufacturing products although technology evaluation is not a new and emerging subject currently besetting scholars in the field of management previous research on this topic has unwittingly left behind the pressing issue of environmental effects based on this observation this study purports to develop a new framework for technology evaluation by taking both economic benefits and environmental perspectives into consideration in it we seek to demonstrate that our proposed framework will not only be a workable model but also can serve as a useful point of reference for technology appraisers and firms decision makers

the elephant in hotelling s room this paper questions the assumption commonly used in theoretical and policy research that scarcity rents make up a large proportion of market prices for oil and coal we show that the empirical literature simple calculations of historical and future scarcity rent shares and possible theoretical explanations all imply the same overall conclusions that scarcity rents seem to have been marginal or non existent historically that they almost certainly do not dominate fossil resource prices today and that there will be other factors shaping the prices in the upcoming decades we therefore argue that using the scarcity rent as the main or only basis for policy or for explaining empirical outcomes is ill advised

evaluating natural resource investments notwithstanding impressive advances in the theory of finance over the past 2 decades practical procedures for capital budgeting have evolved only slowly the standard technique which has remained unchanged in essentials since it was originally proposed see dean 1951 bierman and smidt 1960 derives from a simple adaptation of the fisher 1907 model of valuation under certainty under this technique expected cash flows from an investment project are discounted at a rate deemed appropriate to their risk and the resulting present value is compared with the cost of the project this standard textbook technique reflects modern theoretical developments only insofar as estimates of the discount rate may be obtained from crude application of single period asset pricing theory but see brennan 1973 bogue and roll 1974 turnbull 1977 constantinides 1978 the inadequacy of this approach to capital budgeting is widely acknowledged although not widely discussed its obvious deficiency is its the evaluation of mining and other natural resource projects is made particularly difficult by the high degree of uncertainty attaching to output prices it is shown that the techniques of continuous time arbitrage and stochastic control theory may be used not only to value such projects but also to determine the optimal policies for developing managing and abandoning them the approach may be adapted to a wide variety of contexts outside the natural resource sector where uncertainty about future project revenues is a paramount concern

bundled discounts strategic substitutes or complements bundled discounts by pairs of otherwise independent firms play an increasingly important role as a strategic tool in several industries given that prices of firms competing for the same consumers are strategic complements one would expect their discounts levels also to be strategic complements however in this paper we show that under some circumstances bundled discounts may be strategic substitutes this occurs under vertically differentiated products where a low quality pair of producers may indeed prefer to lower its discount after an increase in the discount offered by a high quality pair of producers

capital investments and resource extraction from non identical deposits abstract taking account of necessary investments in physical capital we characterize the optimal investment and extraction program for exploiting several non identical deposits of an exhaustible resource under the given technology assumptions capital investments will be concentrated up front if deposits are identical in the case of non identical deposits it may be optimal to have investments spread out over time moreover the smallest deposit is depleted first

desirability of compatibility in the absence of network externalities i compare the incentives firms have to produce individual components compatible with components of other manufacturers instead of systems composed of components that are incompatible with components of competing manufacturers i show that even in the absence of positive consumption externalities network externalities prices and profits will be higher in the regime of compatibility equilibrium total surplus could be higher in either regime both regimes overprovide variety compared to the surplus maximizing solution in today s environment many products are complex specified by a long array of characteristics part of the decision of the firm is to choose if it should break this long array of features into two or more smaller parts and produce the products corresponding to the smaller arrays instead of the product that embodies the full array we will call the products that correspond to these smaller arrays components and the product that corresponds to the full array a system note that components are by their definition complements components produced by different manufacturers are compatible if it is feasible for the consumers to combine them costlessly into a working system in this paper we will assume that there are two components which make up a system we will discuss competition under full compatibility when components produced by all firms are compatible with each other and under incompatibility when no components produced by different firms are compatible and no hybrid systems can exist 2 assuming availability of the same

installed base and compatibility innovation product preannouncements and predation a good is often more valuable to any user the more others use compatible goods the authors show that this effect may inhibit innovation if an installed base exists and transition to a new standard must be gradual early adopters bear a disproportionate share of transient incompatibility costs this can produce excess inertia the installed base however is stranded if the new standard is adopted this may create excess momentum these dynamic effects have strategic implications temporary price cutting can permanently prevent entry and product preannouncements can be critical in innovation these strategic actions have ambiguous welfare effects

interest rates and metal price movements further evidence abstract we offer a theory about the relationship between interest rates and metal price movements the theory is a version of the hotelling rule eq 8 the results obtained from prices of four different metals based on seasonally and unadjusted quarterly data over the period 1968 2 1982 2 suggest that a reformulated hotelling rule which has a dynamic structure can explain the relationship between metal prices and interest rates in view of this result it appears that the return on exhaustible resources is related to changes in rather than the levels of interest rates this result also confirms the results of g m heal and m m barrow rev econom stud 48 161 181 1979 econom lett 7 95 103 1981

a note on mining with investment in capital one of the principal predictions of the theory of the extractive firm is that its rate of output will decline steadily throughout time recently in this journal campbell 1980 presented an interesting analysis suggesting that this behaviour may be altered if one accounts for the fact that firms must invest in some level of fixed capital which is needed in combination with variable inputs to extract the resource in the campbell analysis the fixed capital places a constraint on the maximum rate of extraction it is shown that this constraint is binding and that extraction is therefore constant over some initial period of the mine when the firm behaves optimally this note demonstrates that the campbell result is due to a fixed proportions technology assumption in particular when a neoclassical technology is assumed one finds that the constraint imposed by the level of fixed capital is never binding and that the optimal extraction rate is strictly monotonically declining as a function of time i to demonstrate this an informal argument will suffice let k be the level of fixed capital chosen by the firm let lt be the amount of the variable factor employed in period t assume that the rate of extraction et is given by the production function2

the cut off grade and the theory of extraction the cutoff grade problem arises when technological infeasibility or high cost prevents an extractive firm from exploiting a heterogeneous deposit in strict sequence the optimal cutoff grade varies directly with anticipated changes in present value price a stochastic price path induces a higher lower initial cutoff grade if the marginal profit function is concave convex the optimal response to an unanticipated price change depends on the difference between the rates of change in price along the new and original price paths and whether or not the firm can increase extractive capacity including the life of the mine

scarcity efficiency and disequilibrium in resource markets possible interpretations of the concept of scarcity in extractive resource markets are presented and then related to traditional economic ideas of efficient patterns of resource use sources of inefficiency in resource markets are then considered with the main emphasis being on disequilibrium various simple models of disequilibrium suggest that resource markets are more stable if traders expectations are based on quantity rather than price information so that the provision of such information increases efficiency

coupon value a signal for price in this article the author proposes that consumers use the value of a coupon to estimate price study 1 shows that the higher the percentage discount the higher the perceived price study 2 demon

jointly produced exhaustible resources abstract natural resources are often produced jointly from composite ores which in turn are extracted from fixed reserve endowments in this paper market behavior is examined for such resources and it is shown how the price of each resource will depend on its demand and the demands and storage costs for the other resources present in the ore the measurement of resource scarcity is discussed and the effects of uncertainty over future resource demands are examined it is shown that the competitive market will still extract produce and store at socially optimal rates if firms are risk neutral and the average cost of storage is constant policy implications are noted particularly with reference to government stockpiling programs

interfirm bundling and vertical product differentiation in this paper we study the competitive effects of bundled discounts offered by pairs of independent firms in a setting with vertically differentiated goods where firms decide whether to participate in a discounting scheme before prices are set it is shown that in equilibrium all pairs of firms producing goods of the same quality level offer bundled discounts relative to the no bundling benchmark we find that i all headline prices rise ii all bundle prices net of the respective discount decrease and iii only high quality sellers will obtain higher profits furthermore this equilibrium corresponds to the worst scenario in terms of consumer welfare and it and decreases social welfare

price expectations ore quality selection and the supply of a nonrenewable resource abstract economic models of depletion imply that the present value price of a resource and the quality of extracted ore should be directly related the empirical evidence is that in the short run the average quality of extracted ore and in some cases metal output decline in response to a price increase this paper examines a model of extraction with heterogeneous ore quality within a deposit and revised price expectations in which this seemingly paradoxical supply response is rationalized as the outcome of ore quality selection which maximizes the present value of the mine

capital adjustment costs a nonrenewable resource industry the exploitation of a nonrenewable resource by a monopolist or by competitive firms has been studied extensively since hotelling 2 one focal point has been the investigation of markets characterized by a cartel competing with a group of smaller firms as in the oil industry salant 7 and gilbert 1 conclude that the opec cartel will increase its market share and attain monopoly status the industry s history from 1980 through 1986 however suggests that this is not the case the price set by the cartel has encouraged expansion by other firms pushing opec to the point of near collapse further the structure of the nickel and other resource industries has changed from monopoly into competition the fact that existing models fail to track observed trends in market structure implies that important economic elements have been omitted from the analysis as the present study will show including limitations on the ability of firms to expand production quickly yields a more general model of the evolution of market structure

a more general theory of commodity bundling this paper extends the standard model of bundling as a price discrimination device to allow products to be substitutes and for products to be supplied by separate sellers whether integrated or separate firms have an incentive to introduce a bundling discount when demand for the bundle is elastic relative to demand for stand alone products product substitutability typically gives an integrated firm a greater incentive to offer a bundle discount relative to the model with additive preferences while substitutability is often the sole reason why separate sellers wish to offer inter firm discounts when separate sellers coordinate on an inter firm discount they can use the discount to overturn product substitutability and relax competition

an investment model of natural resource markets over the last decade there has been an increasing interest in natural resource economics to some extent this can be ascribed to a general concern with the environment but an important cause was the large price increases for resources in the early 1970s the observed price jumps can be understood as a belated recognition of the scarcity of resources but they can also be viewed as shortor medium term phenomena arising from demand shocks and in the case of petroleum cartelization in markets with slow supply responses a jump in demand or a drop in foreign supplies would result in a sharp immediate price increase even in the absence of any long term resource scarcity the purpose of the present analysis is to try and assess the absolute and relative importance of these two potentially distinctive features of resource markets depletability and slow supply adjustment most of the empirical analysis in the literature examines resource markets from the hotelling 1939 asset market perspective by comparing observed price paths to the equilibrium price path in its simplest form the hotelling model leads to the rule of equality between interest rates and rates of resource price growth however the seminal empirical study by barnett and morse 1963 was not supportive of the hotelling rule and later studies by heal and barrow 1980 1981 smith 1981 and feige and geweke 1979 have provided only limited support the current study provides an alternative approach to testing for depletability in a formulation that also allows for consideration of the inelasticity of supply in the short and intermediate term we do this by concentrating upon the production side of the market and using an adjustment cost1 or investment model of resource production the resulting model seems fairly successful in describing the behaviour of at least three of the metals considered with evidence for both the adjustment cost hypothesis and for depletability there is however also evidence for a technological progress effect that has in the past outweighed the depletability effect and can explain the failure of resource prices to follow the hotelling path section i of the paper develops the adjustment cost model and section ii presents the empirical analysis section iii considers the policy implications of the depletability and adjustment factors

an antitrust analysis of bundled loyalty discounts abstract consider a monopolist in one market that faces competition in a second market bundled loyalty discounts in which customers receive a price break on the monopoly good in exchange for making all purchases from the monopolist have ambiguous welfare effects such discounts should not always be treated as a form of predatory pricing in some settings they act as tie in sales existing tests for whether such discounts violate competition laws do not track changes in consumer surplus or total surplus we apply a new test to an illustrative example based on smithkline that assumes the tied market has homogeneous goods if the tied market is characterized by hotelling competition bundling by the monopolist causes the rival firm to reduce its price in numerical examples we find that this can deter entry or induce exit

the optimal production of an exhaustible resource when price is exogenous and stochastic this paper examines the optimal production of a resource such as oil when its price is determined exogenously e g by a cartel such as opec and is subject to stochastic fluctuations away from an expected growth path we first examine the dependence of production on extraction cost and show that the conventional exponential decline curve is indeed optimal if marginal cost is constant with respect to the rate of extraction but is a hyperbolic function of the reserve level we next show that uncertainty about future price affects the optimal production rate in two ways first if marginal cost is a convex concave function of the rate of production stochastic fluctuations in price raise lower average cost over time so that there is an incentive to speed up slow down production second the option value of the reserve i e the ability to withhold production indefinitely and never incur the cost of extraction provides an incentive to slow down the rate of production

external technology sourcing through alliances or acquisitions an analysis of the application specific integrated circuits industry in today s turbulent business environment innovation is the result of the interplay between two distinct but related factors endogenous r d efforts and quasi external acquisition of technology and know how given the increasing importance of innovation it is vital to understand more about the alternative mechanisms such as alliances and acquisitions that can be used to enhance the innovative performance of companies most of the literature has dealt with these alternatives as isolated issues companies however are constantly challenged to choose between acquisitions and strategic alliances given the limited resources that can be spent on research and development this paper contributes to the literature because it focuses on the choice between innovation related alliances and acquisitions we focus on the question of how the trade off between strategic alliances and acquisitions is influenced by previous direct and indirect ties between firms in an industry network of interfirm alliances we formulate hypotheses pertaining to the number of direct ties between two companies their proximity in the overall alliance network and their centrality in that network in so doing we distinguish between ties that connect firms from the same and from different industry segments and those that connect firms from the same or from different world regions these hypotheses are tested on a sample of strategic alliances and acquisitions in the application specific integrated circuits asic industry the findings show that a series of strategic alliances between two partners increases the probability that one will ultimately acquire the other whereas previous direct contacts tend to lead to an acquisition this is not true of previous indirect contacts which increase the probability that a link between the companies once it is forged takes the form of a strategic alliance in the case of acquisitions firms that are more centrally located in the network of interfirm alliances tend to be acquirers and firms with a less central position tend to become acquired these findings underscore the importance of taking previously formed interfirm linkages into account when explaining the choice between strategic alliances and acquisitions as these existing links influence the transaction costs associated with both alternatives

testing the efficiency of extraction from a stock resource the theoretical conditions for efficient extraction from a known stock resource by a competitive mining firm are reviewed these conditions are tested using proprietary data from a mining firm output price data and coefficient estimates from a translog cost system are used to compute the in situ value of the resource and the stock effect changes in the in situ value over time are then statistically compared with the expected price path the results reject the hypothesis that the data are consistent with the theoretical model and the maintained hypotheses variations of the basic model that incorporate a time varying discount rate an alternative expected price series and a constraint on the rate of output are also tested and rejected 46 references 10 tables

a contribution to the theory of depletable resource scarcity and its measures a contribution to the theory of depletable resource scarcity and its measures i introduction the question of devising suitable measures of the scarcity of natural resources has received considerable attention in the past quarter century beginning with the classic study of barnett and morse 1963 this literature includes a long series of articles of which the collection edited by smith 1979 is an excellent example and which for the moment culminates with the illuminating paper by hall and hall 1984 the present paper expands upon hall and hall s review of the received literature following this a stylized model of exhaustible resource production builds upon some of the classical insights the model suggests that it may be worthwhile to de emphasize the use of unit cost and of rent as measures of scarcity at least in a ricardian context where firms are physically constrained to mine varying qualities of ore simultaneously it also de emphasizes the importance of the question of ultimate exhaustibility of the resource rather it emphasizes the role of capital which is sometimes neglected in extraction models and thereby the role of the exhaustibility of the deposit in influencing the choices of an extracting firm ii classical and classic treatments malthus and ricardo as elaborated by barnett and morse differed in their treatment of agricultural land malthus 1798 assumed a fixed quantity of land 1 so that food production could be expanded to feed a growing society at the extensive margin until the land constraint was reached thereafter more food could be obtained only at higher costs by exploiting the intensive margin ricardo 1817 was at once more pessimistic and more optimistic the quality of land was non homogeneous the best land would be farmed first so that diminishing returns would result from any expansion costs at the extensive and intensive margins would rise and would continue rising as population increased 2 while ricardo did emphasize the role of the intensive margin he did not discuss an ultimate limit even though he was obviously aware of one ricardo lived on an island and had corresponded with malthus instead he advocated removal of trade barriers as a means of avoiding the need to move further into the extensive as well as intensive margin hall and hall 1984 365 6 discern four types of scarcity in the non renewable resource literature namely malthusian and ricardian flow and stock scarcities their discussion is summarized in table i the important questions are 1 whether a limit on total quantity produced is envisaged 2 whether the resource is of uniform quality or whether there are depletion effects which cause quality to decrease through time and 3 whether marginal extraction costs rise at any time as a result of constraints inherent in the characteristics of the resource the distinguishing feature of malthusian scarcities turns on the existence of an ultimate limit to total production which in turn reflects malthus s emphasis on the ultimate fixity of the quantity of cultivable land the distinguishing feature of the ricardian scarcities is that there is no ultimate limit to land rather than diminishing returns at the extensive margin 3 with these definitions malthusian flow scarcity is the most general concept there are three columns in table i with binary entries in each column thus a total of 2 sup 3 8 types of scarcity can be imagined using this classification scheme table ii extends table i to include all eight possibilities and then categories the entries most of the categories have interpretations and are treated in the literature even more importantly it is clearer than in table i that attaching the labels malthusian or ricardian is sometimes suggestive but that trying to stretch the malthusian and ricardian notions developed for self renewing agricultural land to mining can lead to inaccuracies and possibly to confusion

adjustment costs uncertainty and the behavior of the firm this paper examines the effects of demand and cost uncertainty on a firm s investment output and pricing decisions but unlike most earlier studies in which demand and cost are simply not known at the time an output or pricing decision is made here i consider uncertainties over future demand and costs it will be seen that the effects of such uncertainties depend critically on the characteristics of the firm s adjustment costs i treat demand uncertainty in a dynamic context by letting the market demand function shift randomly but continuously through time according to a stochastic process this means that today s demand is known exactly but future demand may be larger or smaller and has a variance that increases with the time horizon likewise uncertainty over factor costs is characterized by treating those variables as stochastic processes i combine this characterization of uncertainty with a dynamic model of the firm in which some factor inputs can be adjusted freely in response to stochastic demand changes but other factors are quasi fixed in that adjustment costs are incurred when they are changed in this model the firm s price and output are random processes but we can examine the firm s behavior in expected value terms of interest is whether the presence of uncertainty should cause competitive or monopolistic firms to invest and produce more or less than they would otherwise how the effects of uncertainty are influenced by the presence of risk aversion and how the use of inventories can alter the impact of uncertainty on capacity and sales of course these questions have been addressed by others in the past among the earliest studies of demand uncertainty are those of edwin mills 1959 1962 and samuel karlin and charles carr 1962 mills examined a single period monopolistic firm that sets both output and price and showed that additive demand uncertainty i e the demand function is of the form q q p u where u is a random variable leads to a lower price if marginal cost is constant so that the firm reduces the expected loss from discarding unsold production karlin and carr confirmed for both the static case and the multiperiod case with inventory carryover that additive uncertainty tends to reduce the price and increase the output of a risk neutral firm while multiplicative uncertainty does the opposite other papers have been concerned with the way in which the error term enters the demand function additively multiplicatively or nonlinearly the implications of choosing price ex ante instead of output the implications of risk aversion and the use of inventories for example agnar sandmo 1971 and david baron 1970 showed that a risk averse competitive firm will produce less when the price is a random variable or subject to an additive error term but a riskneutral firm will not alter its production hayne leland 1972 extended these results to a monopolistic firm whose demand can depend in a general way on a random error term for example q q p u and showed that uncertainty reduces the production of a

interfirm bundled discounts as a collusive device this paper investigates whether and how firms competing in price with homogeneous goods i e bertrand competitors can achieve supernormal profits using interfirm bundled discounts by committing to offering price discounts conditional on the purchase of a specific brand of other differentiated good the homogeneous good suppliers can separate consumers into distinct groups such brand specific discounts help the firms relax competition and attain a collusive outcome consumers become worse o due to higher effective prices our result shows that in oligopolies it is feasible to leverage other s market power without excluding rivals

cross market discounts firms in several markets attract consumers by offering discounts in other unrelated markets this promotion strategy which we call cross market discounts has been successfully adopted in the last few years by many grocery retailers in partnership with gasoline retailers across north america europe and australia in this paper we use an analytical model to investigate the major forces driving the profitability of this novel promotion strategy we consider a generalized scenario in which purchases in a source market lead to price discounts redeemable in a target market our analysis shows that this strategy can be a revenue driver by simultaneously increasing prices as well as sales in the source market even though we assume the demand curve to be downward sloping in price moreover it distributes additional consumption motivated by the discount in two markets and under diminishing marginal returns from consumption this can simultaneously increase firm profits and consumer welfare more effectively than traditional nonlinear pricing strategies our study provides many other interesting insights as well and our key results are in accordance with anecdotal evidence obtained from managers and industry publications

reserve characteristics and mining costs an empirical study of the phosphate industry this paper deals with an estimation of phosphate mining cost function here it is argued that other characteristics of reserves besides their size could be quite important in the cost function the result of a cross sectional analysis of phosphate mining in the world shows that reserve size and average total cost have a positive and modest statistically significant relationship in one of the two models among many qualitative characteristics and location factors tested in this paper overburden grade ore product ratio water availability and the price of capital are significant with expected signs finally the results confirm the existence of economies of scale in phosphate mining which seem to be more related to mining technology than to reserve size

eco efficiency approach for global warming in the context of kyoto mechanism abstract this study discusses an approach to measuring and improving the economic and ecological efficiency of kyoto mechanism projects the approach consists of global warming eco efficiency gwee clean development mechanism cdm joint implementation ji environmental efficiency ee and cdm ji economic productivity ep the gwee indicator is based on the ratio of the value added of a system to its global warming influence in order to measure the eco efficiency of a product in terms of the global warming issue in addition cdm ji ee and cdm ji ep are proposed to measure the environmental and economic performances of cdm and ji projects respectively while ee is defined as the ratio of the certified emission reductions cer obtained from a cdm project or emission reduction unit eru from a ji project to total global warming influence relevant to the cdm or ji implemented ep is defined as the ratio of the total of cer profit and eru profit and the sales revenue to the costs of the cdm and ji implemented then the feasibility of these indicators is examined through a case study for the power generations in the field of alternative energy

models of resource markets and the explanation of resource price behaviour abstract much of the recent theoretical work in resource economics has been aimed at relaxing the stringent simplifying assumptions of the basic hotelling model in an attempt to better explain observed resource price behaviour this paper surveys the characteristics of exhaustible resource markets that are likely to be important for the development of successful positive models in particular we discuss exploration and its relationship to production and market price the effects of various forms of uncertainty on price behaviour and for some resources the treatment of durability finally we address the question of whether producer behaviour can properly be viewed as that of dynamic optimization this paper should be seen as an attempt to stimulate discussion over research directions and priorities in resource economics

taxation ore quality selection and the depletion of a heterogeneous deposit of a nonrenewable resource abstract the effect of taxation on depletion is examined when ore quality varies within a deposit and the firm s selection of the sequence of exploitation is constrained tax policies in this setting are less conserving of the resource than if ore quality is homogeneous and can be less conserving of the resource than in other models of ore quality selection for example a constant severance tax can induce faster depletion decrease the life of the mine reduce total recovery and increase metal output in periods when extraction is positive

cost specification and firm behaviour in a hotelling model of resource extraction in applied resource economics much attention has been focused on the ability of the hotelling model to explain observed firm behavior in this paper a preliminary specification search is performed to determine the appropriate cost function parameterization for the firms in the sample before proceeding to the estimation of the euler equation once a cost function specification is chosen the corresponding euler equation is estimated via the generalization method of moments gmm which allows for better estimates of the euler equations than in previous studies even with the preliminary specification search and the use of gmm estimation the behavior of the panel of fourteen canadian copper mining firms in the data set examined does not seem to be consistent with the basic hotelling model used

grade selection under uncertainty least cost last and other anomalies abstract grade selection rules for heterogeneous resource deposits with increasing marginal extraction costs are derived it is shown that contrary to the conventional wisdom it can be optimal to extract the least cost deposits last there are a number of rules that are compatible with dynamic profit maximization under certainty nevertheless none explains empirical regularities in actual extraction patterns when uncertainty about future price is introduced however the theoretical model conforms closely not only to observed grade selection patterns but also to observed mineral industry price paths

the manufacturing sector s environmental motives a game theoretic analysis what motivates manufacturing companies to make costly investments in producing in an environmentally clean manner the traditional argument is that such behaviour is value reducing and that therefore firms must be forced by regulation to invest in green production processes a counter argument is that firms have an incentive to make environmental investments in an attempt to attract green consumers and investors hence gaining competitive advantage over their rivals in this paper we employ a game theoretic approach that demonstrates that competing firms incentives to make voluntary investments in environmental clean up are affected by the size of the investment costs and the extent of consumer and investor green awareness we argue that an increase in green behaviour can be induced by a combination of governmental subsidies for firms that invest in environmentally clean production processes together with an education program that promotes green awareness amongst consumers investors and the managers themselves

understanding japanese csr the reflections of managers in the field of global operations this paper examines how japanese multinational companies manage corporate social responsibility csr it considers how the concept has come to be framed within japanese business which is increasingly globalized and internationally focused yet continues to exhibit strong cultural specificities the discussion is based on interviews with managers who deal with csr issues and strategy on a day to day basis from 13 multinational companies in looking at how csr practice has been adopted and adapted by japanese corporations we can begin to see what implications arise from the fact that csr is a western led concept so opening up critical questions about the future development and evolution of csr practice within a global context in being exposed to the concept of csr as practiced vigilantly in western countries japanese multinational company managers have certainly come to re evaluate aspects of business likely to need rectifying with potential concerns being gender inequalities discrepancies in employee conditions and issues over human rights and supply chains japan can be thought to be lagging behind in its understanding and adoption of csr in part because corporations do not necessarily state their policies as formally as might be expected yet by analyzing more deeply the kinds of responses gained from csr managers in japan and by placing their remarks within a broader context of japanese culture and business practices a far more subtle and revealing picture becomes apparent not least a more complex picture of the local global interaction of the frames of reference of corporate responsibility

resource characteristics extraction costs and optimal exploitation of mineral resources this paper modifies the traditional theories ofnon renewable resource exploitation where reserve sizeis assumed to be the major determinant of extractioncosts in a competitive model of resourceexploitation characteristics of aggregate reservesare considered as a determinant of extraction cost then dynamic solutions for the price and exploratoryefforts are developed various price paths arefeasible under different assumptions with regard tothe changes in the reserve characteristics over time past empirical research shows that there is noconsistent price path for all materials in fact itis the quality of newly discovered reserves as well astheir size that has affected material prices todemonstrate the complexity of a firm s decision torecover mineral from new deposits potentials forsubstantial high quality marine mineral resources areevaluated as a substitute for land based resources however several factors including the decreasingtrend in marine mining r d expenditures and thepotential impact of large scale marine mining on priceof minerals indicate that mining of mostnon hydrocarbon marine minerals will not take place inthe near future

the positive effect of green intellectual capital on competitive advantages of firms no research explored intellectual capital about green innovation or environmental management this study wanted to fill this research gap and proposed a novel construct green intellectual capital to explore the positive relationship between green intellectual capital and competitive advantages of firms the empirical results of this study showed that the three types of green intellectual capital green human capital green structural capital and green relational capital had positive effects on competitive advantages of firms moreover this study found that green relational capital was the most common among these three types of green intellectual capital and the three types of green intellectual capital of medium small enterprises smes were all significantly less than those of large enterprises in the information and electronics industry in taiwan in sum companies investing many resources and efforts in green intellectual capital could not only meet the trends of strict international environmental regulations and popular environmental consciousness of consumers but also eventually obtain corporate competitive advantages

technology adoption in the presence of network externalities we analyze technology adoption in industries where network externalities are significant the pattern of adoption depends on whether technologies are sponsored a sponsor is an entity that has property rights to the technology and hence is willing to make investments to promote it key findings include the following 1 compatibility tends to be undersupplied by the market but excessive standardization can occur 2 in the absence of sponsors the technology superior today has a strategic advantage and is likely to dominate the market 3 when one of two rival technologies is sponsored that technology has a strategic advantage and may be adopted even if it is inferior 4 when two competing technologies both are sponsored the technology that will be superior tomorrow has a strategic advantage

on the sign of the investment uncertainty relationship understanding the effects of uncertainty over any decision variable has fascinated economists for a long time risk aversion and incomplete markets are likely to make the investment uncertainty relationship negative e g roger craine 1989 joseph zeira 1989 what happens in the absence of risk aversion and incomplete markets is however ambiguous richard hartman 1972 and andrew b abel 1983 1984 1985 found that in the presence of symmetric convex costs of adjustment mean preserving increases in price uncertainty raise investment of a competitive firm as long as the profit function is convex in prices on the other hand the recent literature on irreversible investment e g robert s pindyck 1988 giuseppe bertola 1988 has shown that increases in uncertainty lower investment all these results have been derived under either risk neutrality or complete markets intuition suggests that the explanation for such a difference lies with the asymmetric nature of adjustment costs in the irreversible investment case as compared with the symmetry of the adjustment cost mechanisms proposed by abel and hartman although this intuition is confirmed in this paper asymmetric adjustment costs are shown not to be sufficient to explain why the results differ in fact a more hidden but at least as important difference between these two literatures is that the former assumes perfect competition and constant returns to scale whereas the latter assumes either imperfect competition or decreasing returns to scale or both 2 the purpose of this paper is to highlight the role of the decreasing marginal return to capital assumption due to either imperfect competition or decreasing returns to scale or both in determining the effects of adjustment cost asymmetries on the sign of the response of investment to changes in uncertainty under risk neutrality for this the paper develops a simple model with a cost of adjustment mechanism general enough to consider both symmetric convexity and irreversibility as special cases one of the most important findings is the lack of robustness of the negative relationship between investment and uncertainty under asymmetric adjustment costs3 to changes in the degree of competition in fact when firms are nearly competitive the conclusion of hartman and of abel holds no matter how asymmetric adjustment costs are studying adjustment cost mechanisms has a central role in understanding the dynamics of investment and its business cycle implications but conclusive results about the sign of the instantaneous relationship between uncertainty and investment should not be department of economics columbia university new york ny 10027 i am grateful to giuseppe bertola prajit dutta glen hubbard anil kashyap richard lyons and the referees for their useful comments 1the financial literature on investment has considered risk aversion through a premium in the discount rate determined by the capm capital asset pricing model intertemporal capm or consumption capm however often this discount rate is left unchanged when studying the response of investment to uncertainty changes e g pindyck 1988 pp 974 5 thereby omitting the effect of changes in uncertainty on investment due to risk aversion and incomplete markets 2in the typical version of the irreversible investment problem there is no cost of upward adjustments thus imperfect competition and or decreasing returns to scale are required to bound the size of the firm 3in this paper asymmetric adjustment cost refers to the case in which it is more expensive to adjust downward than upward certainly the opposite case is a trivial extension of the case studied in this paper

sectoral supply of minerals of varying quality in this sectoral model of mineral production investment in capacity and variation in orebody grade and volume help explain some stylized facts more than one grade of ore may be exploited simultaneously mine exhaustion but not necessarily entry occurs in declining order of grade the price may rise or fall but is likely to fall initially young industry and must eventually rise at less than the interest rate unless demand expands rapidly these trends exhibit fluctuations due to entry and exhaustion of deposits resource price cyclicality is reinforced because mines keep producing at capacity when the price is falling

returns to scale adjustment costs and the optimal investment of the mining firm abstract this paper analyses the optimal investment programme of a competitive mining firm for two different technologies and capital adjustment costs in the first part the case of a variable proportions technology with decreasing returns to scale is studied and it is concluded that under the assumption of a constant mineral price a first stage in the exploitation period of the deposit will occur in which capital stock is increasing in the second part the optimal investment programme is determined when there are constant returns to scale and hotelling s rule governs the dynamics of the mineral price

a strategic motivation for commodity bundling the analytical literature on commodity bundling explains the practice of selling two or more differentiated products in a single package as a surrogate for direct price discrimination in contrast this paper shows that imperfect competition creates a strategic incentive to bundle the profitability of bundling whether it adversely affects rival producers and whether it yields an overall efficiency gain depends inter alia on the nature of product market competition the role of complementarity in explaining why firms bundle is also explored copyright 1990 by blackwell publishing ltd

adjustment costs uncertainty and the theory of investment the case of non renewable natural resources abstract this paper examines the effects of mineral price and extraction cost uncertainty on the investment program of a competitive resource extracting industry that faces convex costs of adjustment the results show that depletion of mineral reserves will slow down if the marginal adjustment cost function is concave or linear whereas the effect will be ambiguous if the function is convex

adjusting to climate change implications of increased variability and asymmetric adjustment costs for investment in water reserves abstract in this paper we study the determination of optimal water storage capacity in a region taking into account that the supply of the resource the flow into the reserve is uncertain that a measure of the uncertainty the variance is likely to increase with climate change that building capacity is costly and that the development of water resources may entail alsoenvironmental costs we find that water storage capacity in the long run ispositivelyrelated to increases in uncertainty if the marginal benefit of water withdrawal isconvexand that for the case of costly reversibility of investment a range of inaction for investment appears and the stability of water storage capacity with respect to changes in variance increases

mineral depletion with cost as the extraction limit a model applied to the behavior of prices in the nickel industry abstract this article follows papers by pindyck and heal and barrow in applying a hotelling type depletion model to a particular resource industry in this case that of nickel by means of the model the resource rent per ton of nickel is calculated as the proper index of extractive resource scarcity the time path of this resource rent indicates that the model explains industry behavior well and that as in the two previous studies depletion has been an important determinant of prices and rents in this industry

behaviour of non renewable natural resource firms under uncertainty optimizing or ad hoc abstract this paper tests the assumption of optimizing behaviour by natural resource firms in the framework of an intertemporal model of non renewable resource development and production using data from the petroleum industry it is argued that the presence of geological and price uncertainty presents a situation in which standard objections to non optimizing behaviour may not hold as an alternative it is proposed that firms use an ad hoc rule of thumb to update decisions as the values of variables change econometric results support ad hoc behaviour as opposed to intertemporal profit maximization

production and investment in natural resource industries there has been a recent tendency for economists to view natural resource scarcity as a diminishing threat to man s existence and his ability to produce an abundant supply of worldly goods see john v krutilla this change in view has emanated from the world s experience of the last few decades with technological development and the absence of any evidence that this rapid accumulation of technical knowledge will cease in some respects one might think that modern technology has removed the need for an economic theory of conservation temporal allocation of natural resources on the other hand conservation of natural resources can now be looked upon with less emotion since the dire consequences of too rapid exploitation are no longer a threat the question of conservation is thus a cold economic problem removed from many of its older value connotations there is indeed considerable effort taking place in the economics profession to fill this need for a quantitative economic theory of conservation however with one exception vernon smith focus has been limited to specific resources earlier works by lewis c gray and harold hotelling concerning the theory of the mine have recently been extended in numerous papers see r cummings and 0 burt richard l gordon anthony scott 1967 problems associated with petroleum production are considered in paul davidson and the fishery is considered in j a crutchfield and arnold zellner h scott gordon james quirk and vernon smith anthony scott 1955 and ralph turvey an extensive literature exists on the temporal allocation of groundwater two recent contributions are gardner brown and charles b mcguire and burt a logical problem has been encountered however in efforts to examine the optimum allocation of a natural resource over time without explicitly considering the rate of investment associated with resource use this difficulty stems from the long life of many capital items used in the process of exploiting the natural resource earlier studies have either tacitly or explicitly amortized costs of investment associated with resource use and proceeded as though all costs of production were essentially variable smith was the first to explicitly bring capital investment into a production model for natural resources and his work was followed by the authors where only exhaustible resources were considered more recently quirk and smith have introduced a dynamic model of the fishery in which capital investment is treated explicitly it seems then that there is a need for a comprehensive model for simultaneously optimizing the rate of resource use and investment in natural resource industries

on comparing monopoly and competition in exhaustible resource exploitation abstract it is widely believed that exhaustible resource monopolies do not enjoy as much market power as standard non resource monopolies and may even produce in a socially optimal way we argue that this paradoxical result arises from an inappropriate comparison methodology when similar assumptions are applied to the resource and the conventional cases we show that the resource monopoly behaves as expected i e restricts supply

a test of the hotelling valuation principle time series tests of the hotelling r percent rule for natural resource prices have not been strongly supportive but the tests and the data are subject to serious difficulties we propose here an alternative testing strategy based on another but less widely known implication of the hotelling model we test this implication which we call the hotelling valuation principle by regressing the market values of the reserves of a sample of u s domestic oiland gas producing companies on their estimated hotelling values we find that the estimated hotelling values account for a significant portion of the observed variations in market values and that the hotelling measures are better indicators of the market values of petroleum properties than two widely cited publicly available alternative appraisals

capital income taxation depletion allowances and nonrenewable resource extraction abstract this paper analyses the distortionary effects of the corporate income tax on the output path of the resource sector and on the allocation of resources between the mining and non mining corporate sectors the cost of capital for a resource industry facing a corporate income tax is derived as well as the resulting effective tax rate on capital income the comparison of the effective tax rates of the mining and non mining sectors pays particular attention to the role played by the depletion allowance in assuring equal treatment

resource taxation with heterogeneous quality and endogenous reserves abstract this paper analyzes the impact of mining taxation on the intertemporal extraction profile for a heterogeneous ore body the extraction profile specifies both quantities and qualities extracted in each period total extraction is thus endogenously determined the taxes explicitly considered are severance taxes ad valorem or per unit on metal or on ore property taxes and profits taxes with depletion allowance the intertemporal framework integrates economic and geological factors generating new results on extraction distortions and providing qualification or reconciliation of previous diverse results in this area

variable long term trends in mineral prices the ongoing tug of war between exploration depletion and technological change abstract this paper explores the use of low frequency band pass filters for describing long run trends in real mineral commodity prices this approach has the advantage of allowing long run trend rates to evolve gradually over time rather than assuming that they are constant perhaps with occasional structural breaks over time this is a flexible way of capturing the ongoing tug of war between exploration depletion and technological change over 100 mineral and commodities stretching back to the late 19th or early 20th century are considered the variety of lr trends is astonishing but very few increase monotonically contrary to the prediction of the basic hotelling model some decline monotonically as predicted by prebisch and singer some have the u shaped pattern predicted by pindyck 1978 heal 1981 and slade 1982 others have changed direction up to three times in the period since 1900 the tug of war continues with exhaustion nowhere in sight

on measuring natural resource scarcity conclusions concerning trends in natural resource scarcity may depend critically on the choice of scarcity index unfortunately the prevalence of vertical integration in natural resource industries has hindered the use of some otherwise desirable scarcity measures in this paper duality theory is used to derive an econometric procedure for estimating one such measure the shadow price of the resource in situ empirical results for the canadian metal mining industry indicate that resource scarcity as measured by this shadow price has decreased substantially over time