exploration and extraction in a duopoly exhaustible resource market exploration for an exhaustible natural resource is valuable because it produces information about the resource stock i model a duopoly exhaustible resource industry with imperfect information about stock size as a two period game where each period is made up of an exploration stage and an extraction stage i derive the value of gaining information about stock size prior to committing to an extraction plan both for the exploring firm and for the rival i show that an exploring firm would prefer on average to keep exploration information private but that industry profit is higher when information is made public le processus d e xploration et d extraction dans un marche de ressource naturelle non renouvelable oui il y a un duopole le processus d exploration est utile parce qu il permet de produire des renseignements quant a la taille du stock d une ressource naturelle non renouvelable l auteur examine un modele de duopole dans un jeu a deux p6riodes pour une industrie de ressource naturelle non renouvelable l information est imparfaite quant a la taille du stock de resource et chacune des deux p6riodes a un stage d exploration et un stage d extraction l auteur d6rive la valeur de l information additionnelle qujant a la taille du stock de ressource avant de s etngager dans un plan d extraction a la fois pour l entreprise exploratrice et pour l entreprise rivale on montre que l enterprise exploratrice va pr6f6rer en moyenne garder l information priv6e mais que les profits dans l industrie sont plus 6lev6s quand l information est rendue publique

exhaustible resource allocation in an overlapping generations economy abstract this paper analyzes competitive allocations of an exhaustible resource in an overlapping generations economy conditions are given for the existence of equilibrium extraction rules such that both extraction and investment in future stocks are increasing and continuous in the current stock the paper then considers the time paths of equilibrium allocations and shows that there are economies where equilibrium resource extractions and prices exhibit nonclassical behavior this is illustrated through a finite horizon example in which extractions increase and prices decrease over the entire time horizon and an infinite horizon example where there are persistent cycles in extractions and prices and multiple equilibria the paper concludes by examining welfare issues

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

exhaustible resources a theory of exploration the paper presents a theory of exploration for exhaustible resources exploration serves both to find new reserves and obtain information about potential reserves although any realized time path of the resource price fails to obey the hotelling rule the expected resource price does increase exponentially through time at the rate of discount we obtain sharper results when the resource is assumed to be distributed randomly throughout the exploration region and follows a poisson process with parameter a consumption and exploration decisions are investigated for both the case where a is known and the case where a is unknown

balancing the carbon budget for oil the distributive effects of alternative policies keeping temperature change below 2 c will require leaving large reserves of fossil fuels unextracted we assess alternative policies to achieve this goal in a world divided into two regions one regulated with emissions pricing and one unregulated supplied by multiple resource pools with different extraction costs and a carbon free backstop whose costs decline over time global emissions can be reduced by combinations of three policies 1 increasing the size of the regulated coalition 2 raising the tax or tightening the cap within the regulated coalition and 3 accelerating cost reductions of the clean technology we ask how combinations achieving the same cumulative co2 emissions the carbon budget affect the discounted surplus of regulated and unregulated consumers and the wealth of the extractors we first evaluate these policy alternatives in a two pool theoretical model with high and low cost extractors and once tradeoffs are illuminated in a calibrated oil market model a global co2 tax is both cost effective and the best policy for regulated consumers extractors and unregulated consumers however prefer a technology only policy when the regulating coalition is subglobal support for the clean substitute is desired and often required but the preferred policy portfolio of the coalition involves a tighter cap and less technology policy than is globally optimal leaving room for bargaining over who pays for clean innovation

the private and social value of information exploration for exhaustible resources abstract in this paper i develop a model where exploration yields information about the size and location of the stock of an exhaustible resource this information is valuable in two ways first before production takes place reserves must be located through exploration the process of exploration changes unproven reserves which cannot be produced into proven reserves which can one value of exploration then is that it allows total production over time to expand the expansion effect second by exploring in an early time period a producer gains information about the true stock size prior to making a decision about how fast to exploit reserves with better information the extraction rate chosen by the producer will yield higher expected returns from the stock the timing effect i show that the expansion effect is undervalued by a firm relative to a social planner an increase in proven reserves increases production and lowers prices improving consumer welfare the timing effect however can be over or undervalued by a firm relative to a social planner if the exploring firm makes up a relatively small portion of industry and if consumers are not highly risk averse then the firm will overvalue the timing effect as a result firms may not explore some tracts where it is efficient to do so if however a firm finds it valuable to explore a tract it may explore earlier in time than is optimal

the concept of natural capital the natural environment is now commonly viewed as a form of capital asset or natural capital also included are ecosystems that provide important goods and services to the economy managing natural capital has consequences for sustainable development however there are contrasting weak versus strong sustainability views which in turn have implications for green accounting natural resource based sovereign wealth funds have emerged as key financial instruments for compensating resource depreciation with greater economy wide investments recent scientific evidence recommends demarcating safe operating spaces to limit exploitation of critical global biophysical subsystems or processes these challenges suggest that the concept of natural capital is pivotal to sound policy

equilibrium valuation of natural resources the purpose of this paper is to provide a theoretical investigation of equilibrium spot and futures price behavior in a nonrenewable commodity market the underlying commodity is nonrenewable in the sense that the reserve level of the commodity is expected to decline over time in the absence of successful discoveries of additional reserves i wish to understand how the nonrenewable nature of the commodity influences the intertemporal extraction of the commodity equilibrium spot price behavior and the prices of derivative assets traded on the nonrenewable commodity there is considerable disagreement among economists whether resources are exhaustible in the sense of resource constraints becoming binding on our society in the foreseeable future some economists have argued that natural resources are being depleted at

is hotelling s rule relevant to domestic oil production a model of oil supply from known reserves is developed to incorporate geological and engineering principles in the oil field operator s decision problem oil production from existing wells within an oil field is isolated from the drilling of new wells the geo engineering

on r d timing under uncertainty abstract in this paper we analyze the problem of endogenous r d timing when technological breakthrough and innovation are random events in a dynamic framework which involves the substitution of an exhaustible resource oil for instance by an alternative technology the backstop that provides an everlasting source of energy under fairly general assumptions we characterize the pattern of exploitation of both energy sources and study the effect of uncertain technological breakthrough on the r d timing decision on resource prices and on the pattern of resource use in comparison to the certainty case it is shown that uncertainty consideration might delay the undertaking of r d and might lead to a more rapid resource depletion pattern for a considerable range of r d capital costs while the opposite result the conventional wisdom holds only for some other range

monopoly extraction of a nonrenewable resource facing capacity constrained renewable competition abstract this paper studies monopoly extraction of a nonrenewable resource with the presence of a competitively supplied capacity constrained renewable substitute the monopolist staves off the renewable supply when the latter becomes competitive and then lets the resource price jump up

market structure and resource depletion a contribution to the theory of intertemporal monopolistic competition a the theory of resource extraction in the model we present there exists a produced substitute to the natural resource the primary question with which we are concerned is the interaction of the resource and its substitute the model we present can thus be thought as providing a link between rent and production based price theories one of the general results in the earlier literature on resource extraction is that deposits with lower extraction costs will be exploited first the analysis

a microeconometric test of the theory of exhaustible resources abstract this paper generalizes extant developments of the economic theory of exhaustible resource production derives and extends a halvorsen and smith 1991 quarterly journal of economics 106 123 140 type test of the theory and applies the test to a sample of natural gas resources to facilitate our empirical test we extend the model developed in chermak and patrick 1995 journal of environmental economics and management 28 174 189 to explicitly account for the fact that the extracted resource gross product must be processed to obtain the final saleable product duality theory is used to derive econometric models with which the theory is statistically tested using panel data from 29 natural gas wells shadow prices of the resource stock through time which are generally unobservable but necessary for the test are estimated via the indirect cost function contrary to the extant literature we find inter alia that i at any point in time ceteris paribus the in situ resource price a decreases with gross production and b increases with final production and ii we cannot reject the theory of exhaustible resources i e producer behavior is consistent with the theory

valuation of the ecosystem services a psycho cultural perspective abstract valuation of ecosystems services has been a challenging issue for economists there is a growing concern to capture the total and incremental changes in services of different types of ecosystems mainly due to perturbations arising from anthropogenic activities market based valuation techniques have long been declared inadequate and a constructed market method such as the contingent valuation method albeit a robust tool does not seem to capture the expanse nuances and intricacies of many of the ecosystem services the paper attempts to address the lacunae in valuation of ecosystem services from a psychological perspective by arguing that the common person s perception of the ecosystem is quite different from what is conceptualized by conventional economists the paper shows how the ecological identity of individuals is revealed at various levels of the decision making hierarchy that is from local to regional and further onto a global level the paper builds upon insights from psychoanalytic psychology and environmental psychology further it outlines recent research findings from experimental psychology to redefine concepts such as ecological identity self other dichotomy and the fostering of identification with nature as issues that must be embraced in the valuation of ecosystem services extending the idea of relational goods and reciprocity the paper offers a deconstructed view of market forces and furthers the idea of interdisciplinary collaboration and cooperation in the valuation of ecosystem services in this perspective the dichotomy and schism between markets missing markets and non markets gets renovated and reconstructed beyond a utilitarian discourse

do oil producers act as oil igopolists in this paper the author analyzes an oligopoly model of exhaustible resource extraction and develop predictions about relative extraction patterns of different producers using the open quote oil close quote igopoly model of loury one can show that producers with large stocks produce a larger amount but a smaller percentage of their stocks than producers with small stocks the authors extend loury s model to cases where extraction costs differ among producers and where costs are a function of cumulative extraction an increase in extraction costs for a producer causes it to produce less relative to its rivals when extraction costs rise with cumulative extraction producers with large reserves tend to have lower extraction costs and a smaller ratio of cumulative production to initial reserves than producers with small reserves the authors test the predictions of the model using oil industry data and find that the empirical results are consistent with the predictions of open quotes oil close quotes igopoly theory producers with larger reserves extract a smaller share of their reserves and have lower production costs than producers with smaller reserves this pattern holds for 73 countries with oil reserves during the time period 1970 1989 and for approximately 400 us oil companies in 1983 and 1984 more the observed pattern of production for both opec and non opec producers is consistent with open quote oil close quote igopoly theory opec producers do not appear to restrain production given their level of reserves relative to non opec producers thus viewing the oil market as containing one dominant firm opec with a competitive fringe may be misleading further the pattern of extraction observed in oil markets is inconsistent with the pattern predicted by competitive theory 29 refs 5 figs 6 tabs less

stream ecosystem service markets under no net loss regulation abstract we analyze interactions between economics and ecology for ecosystem service markets under no net loss regulation previous studies of no net loss regulation address the ecological efficacy and valuation of restoration but largely ignore the effects of market dynamics we link an economic model of free entry equilibria with an ecological model that includes returns to scale and inefficiency of restored ecosystems and apply the result to stream mitigation banking in north carolina intuition from ecology alone must be modified to account for economic processes and vice versa to implement no net loss regulation one must not only account for ecological differences between restored and natural ecosystems but also consider the effect of market entry on the number and size of restoration projects in a purely economic model free entry equilibria are characterized by excess entry the equilibrium number of firms is greater than the welfare maximizing number ecological considerations may exacerbate or ameliorate this so that either excess entry or insufficient entry may occur depending on the specific ecosystem services sought

managing the quality of a resource with stock and flow controls abstract we consider a class of problems which we call sfq problems in which both stocks and flows can be controlled to promote the quality of a valued resource such as environmental quality or public infrastructure under the optimal policy periodic restoration of the stock of quality complements positive but variable abatement of the flow of damages when deterioration is more rapid or highly variable or when abatement is more expensive relative to restoration the optimal policy relies relatively more on restoration when deterioration is due to private firms or individuals a flow tax equal to the present value of marginal damages provides efficient incentives for abatement this tax rises at first as quality worsens but eventually falls as restoration nears the revenues raised by such a tax approximates the cost of restoration with the two quantities converging as the variance of flows goes to zero we discuss the implications of the sfq model for a range of real world problems in the environmental arena and for the management of public infrastructure but the lessons are general and we briefly discuss how they apply to private stocks of physical and human capital

on the portents of peak oil and other indicators of resource scarcity economists have studied various indicators of resource scarcity but largely ignored the phenomenon of peaking due to its connection to non economic physical theories of resource exhaustion i consider peaking from the economic point of view where economic forces determine the shape of the equilibrium extraction path within that framework i ask whether the timing of peak production reveals anything useful about scarcity i find peaking to be an ambiguous indicator if someone announced the peak would arrive earlier than expected and you believed them you would not know whether the news was good or bad however i also show that the traditional economic indicators of resource scarcity price cost and rent fare no better and argue that previous studies have misconstrued the connection between changes in underlying scarcity and movements in these traditional indicators

resource curse or not a question of appropriability this thesis presents three self contained essays focusing on empirical questions in growth and development economics each article addresses specific questions on why countries perform differently in particular i analyse the effect of democracy on economic development the relationship between natural resources and growth and the efficiency of foreign development assistance in the first essay democracy consolidation and growth i analyse the effect of democracy on economic growth in this context i argue that an important aspect to consider is how consolidated political systems are put simply i find that it is not only a question of how democratic countries are but also how long they have been democratic in other words economic performance tends to improve with the duration of uninterrupted democracy the performance of autocracies on the other hand tends to deteriorate over time however for newly established political systems there seems to be a cost of being democratic this implies that democracies only bear their fruit after some time the analysis has important policy implications to overcome initial straits international assistance focused on democratic consolidation may be important and a very good investment in fostering long run development the second essay resource curse or not a question of appropriability together with anne boschini and jesper roine is concerned with the relation between natural resources and economic development for most laymen as well as for most economists it would seem reasonable that countries richly endowed in natural resources also benefit from this wealth however a large literature has found a systematic negative effect of natural resource abundance on economic growth we suggest that this so called resource curse is not determined by resource endowments alone but rather by the interaction between the type of resources a country possesses and the quality of institutions in the country this combination of factors determines what we call the appropriability of a resource the concept of appropriability captures the likelihood of natural resources leading to rentseeking corruption or conflicts which in turn will harm economic development our results suggest that if institutions are good enough the curse may be turned into a blessing this may explain why some countries such as norway and botswana tend to benefit from their resources while others such as angola and sierra leone do not the third and final essay of this thesis foreign sectoral aid fungibility growth and poverty reduction is a contribution to the aid efficiency literature which is concerned with the question of whether aid helps or hinders economic development foreign development assistance is often targeted on specific public expenditure sectors if this aid is not used in the sector for which it was granted e g health education it is said to be fungible and donors may end up financing something completely different from what they intended e g military expenditures the major concern about sectoral fungibility is that the alternative use of aid may be less productive or less socially useful however measuring fungibility is not sufficient to determine whether foreign sectoral aid fungibility is actually harmful what is important is how the funds treated as fungible are used the essay starts by obtaining estimates of fungibility for 57 countries the results suggest that sectoral aid is indeed largely treated as fungible by recipient countries next to assess the economic and health effects of fungibility these estimates are incorporated into an empirical model of aid and growth as well as into a model of aid and infant mortality altogether i find no evidence of more fungible sectoral aid leading to worse performance

price scarcity rent and a modified r per cent rule for non renewable resources since hotelling s seminal paper on the optimal depletion of exhaustible resources much has been published yet confusion remains about whether scarcity rent and price increase or decrease as a resource is depleted when costs tend to rise with depletion we show that hotelling s fundamental results of rising scarcity rent and price paths are sustained and that the path of scarcity rent converges on the r per cent rule provided the objective function is concave predictions of non monotonic or declining scarcity rent paths are due to implicit assumptions that lead to a non concave objective function we identify the sources of these non concavities jel classification q30 d90 c60 prix rente de rarete et une regle modifiee du r pourcent pour les ressources non renouvelables malgre la volumineuse litterature specialisee qui a fleuri depuis qu hotelling a ecrit son memoire fondateur sur l epuisement optimal des ressources renouvelables une grande confusion regne toujours quand il faut etablir si la rente de rarete et le prix augmentent ou chutent a proportion que la ressource s epuise quand les couts tendent a croitre avec l epuisement ce memoire montre que les resultats fondamentaux obtenus par hotelling quant aux sentiers de croissance de la rente de rarete et du prix tiennent toujours et que le sentier de croissance de la rente de rarete converge vers la regle du r pourcent pourvu que la fonction objective soit concave les predictions de sentiers de croissance non monotone ou de declin de la rente de rarete presentees dans la litterature specialisee sont attribuables a des postulats implicites qui engendrent une fonction objective non concave les auteurs identifient les sources de ces non concavites

the management of fragile resources a long term perspective excessive exploitation diminishes the capacity of natural resources to withstand environmental stress increasing their vulnerability to extreme conditions that may trigger abrupt changes the onset of such events depends on the coincidence of random environmental conditions and the resource state determining its resilience examples include species extinction ecosystem collapse disease outburst and climate change induced calamities the policy response to the catastrophic threat is measured in terms of its effect on the long term behavior of the resource state to that end the l methodology developed originally to study autonomous systems is extended to non autonomous problems involving catastrophic threats

ecosystem service value assessment for constructed wetlands a case study in hangzhou china abstract based on a comprehensive analysis of various classifications of natural resource values we summarized an ecological economic value system of constructed wetland cw ecosystems for treating eutrophic water using the cw located at the hangzhou botanical garden as an example the contingent valuation method cvm and shadow project approach spa were applied to estimate the economic values of cw system ecosystem services the cvm estimated a value of 800 000 yuan yuan chinese currency 7 6 yuan 1 usd as of august 2007 as the total economic value of the cw in a twenty year period meanwhile the spa calculated a value of 23 04 million yuan as the total economic value of the cw in a twenty year period it is determined that compared to the cvm the spa provides a more approximate value of the true monetary value of the hangzhou botanical garden cw this study could fill the gap of knowledge and provide a benchmark when evaluating constructed ecosystem services and help policy makers to promote the development of constructed wetlands in china

when two wrongs make a right second best point nonpoint trading ratios most research on point nonpoint trading focuses on the choice of trading ratio the rate point source controls trade for nonpoint controls although the first best ratio is jointly determined with the optimal number of permits in practice program managers often do not have control over the number of permits only the trading ratio the trading ratio in this case can only be second best we derive the second best trading ratio and using a numerical example of trading in the susquehanna river basin we find the values are in line with current ratios but for different reasons than those that are normally provided

optimal transition to backstop substitutes for nonrenewable resources abstract we analyze the optimal transition from a primary nonrenewable resource to a backstop substitute for a class of problems characterized by the property that the backstop cost decreases continuously as learning from r d efforts accumulates to increase the knowledge base the transition policy consists of the r d process and of the time profiles of the primary and backstop resource supply rates we find that the optimal r d process follows a most rapid approach path mrap the knowledge process associated with r d should approach some endogenously derived target process as rapidly as possible and proceed along it thereafter thus if the initial knowledge level is sufficiently low and the cost structure justifies r d activities the r d efforts should be initiated without delay at the highest affordable rate and slow down later on this pattern contrasts previous findings that typically recommend a single humped r d process with a possible initial delay

a note on uncertainty and the hotelling rule abstract in this paper we derive the hotelling rule of optimal natural resource depletion modified to account for uncertainty in rates of return it is shown that in the presence of risk aversion the rule implies that the expected equilibrium rate of increase of net resource price must equal the expected rate of interest if and only if there exists a zero covariance between the marginal utility of consumption and the difference between the rate of net price increase and the rate of interest the sign of this covariance is an empirical question as an example illustrates

economic indicators of resource scarcity a critical essay abstract the theoretical arguments of the conceptual and empirical literature on economic indicators of long run resource scarcity are logically flawed if resource allocators were informed of the nature of resource scarcity their behavior and the economic indicators it generates would reflect the scarcity but if they were so informed we could simply ask them if resources were scarce if they are not informed their behavior and economic indicators are as likely to indicate their ignorance as the reality unfortunately there is no way of knowing whether they are informed or not unless we already know whether resources are scarce

market structure and resource extraction under uncertainty this paper compares the rate of extraction of a natural resource under alternative market structures when there is uncertainty about the date of discovery of a substitute or about the date of discovery of a new deposit the analysis shows that imperfectly competitive market structures are excessively conservationist for any value of the initial stock of the natural resource the price is higher than in competitive equilibrium and therefore higher than the socially optimal level but markets with limited competition may have a higher price than markets with pure monopoly the same monopolist controlling the natural resource and its substitute in particular we find that the highest prices are associated with nash quantity setting duopolists the next highest prices occur in markets in which the monopolist controls the resource but the substitute is competitively produced the pure monopolist sets his price lower than this while the market in which a monopolist controls the substitute but the resource is competitvely owned is still lower

deregulation endogenous expectations and the evolution of industry structure this analysis of deregulation as a government directed switch of regime from monopoly to competition treats the incumbent producer as a monopolist who anticipates that deregulation will occur at some future date and result in the deployment of substitutes producing a competitive environment the results suggest that the ceiling for the rise in world gas prices will fall capping any domestic price rise the model indicates that any drop in world prices will be moderated by an incumbent producer e g opec who uses market variables like price to improve his forecast of competitive entry when the incumbent recognizes that higher monopoly prices raise the probability of entry the resulting monopoly path of prices will lie closer to the postulated path of initial competitive prices resulting in a less substantial drop in price when the switch of regime actually occurs 27 references

product bundling and a rule of thumb versus the harville formulae can each way bets with uk bookmakers generate abnormal returns bookmakers practise a type of product bundling to bet a horse for a place a punter has to bet an equal amount for a win the returns to the place component of the bet are determined by a rule of thumb this paper examines whether the product bundling negates a betting strategy that endeavours to exploit any inefficiency in pricing of the place component of each way bets based on the harville formulae in order to implement the harville formulae shin probabilities are employed which correct for the favourite longshot bias in starting price odds as measures of win probabilities the analysis suggests that small positive expected returns to each way bets appear to exist

free entry and social inefficiency our goal is to provide a simple yet general exposition of the conditions under which the number of entrants in a free entry equilibrium is excessive insufficient or optimal our analysis compares the number of firms that enter a market when there is free entry with the number that would be desired by a social planner who is unable to control the behavior of firms once they are in the market that is we consider the second best problem of choosing the welfare maximizing number of firms while we take as given their noncompetitive behavior after entry we demonstrate that the crucial conditions for establishing the presence of an entry bias can be stated quite simply in terms of the outcome of the postentry game played by entrants in contrast to previous work we do not need to model this postentry game explicitly

the costs of uncoordinated regulation patents encourage firms to undertake research and development by protecting innovator revenues from competition controls on pollution of the environment are intended to close the gap between the private and social costs of natural resource use this paper examines the incentives that are created by the interaction of these two separate pieces of regulation a model is developed that shows how an incumbent patent holding firm can take advantage of environmental regulation to exclude rivals from her market

extraction of a resource with a substitute for some of its uses important resources e g oil may be used for several purposes there may exist good substitutes for such a resource in some of its uses but no substitute in other uses the price and extraction paths for the resource are analysed for several market structures some of these paths differ substantially from the corresponding paths for the case of no substitute and for the case of a substitute for all the resource s uses in particular a jump in the resource price may occur l extraction d une ressource quand il existe un substitut pour certains des usages qu on peut en faire certaines ressources importantes comme 1 huile par exemple peuvent etre utilisees a plusieurs fins dans certains cas il se peut qu il existe des substituts pour certains usages qu on peut en faire alors que dans d autres cas il n existe pas de substituts l auteur examine la tarification et les diverse strategies d extraction dans des structure de marches differentes certaines de ces strategies d extraction different substantiellement de celles qui auraient ete utilisees soit dans le cas oiu aucun substitut n existe soit dans le cas ou substitut existe pour tous les usages qu on peut faire de la ressource en particulier on peut observer un saut dans le prix de la ressource

optimal consumption of a nonrenewable resource with stochastic discoveries and a random environment we present a general model for the optimal consumption of a nonrenewable resource under two kinds of uncertainties one source of uncertainty is in the resource discovery process and the other is in the economic environment that affects resource supply and demand conditions such as exhaustion and development of a substitute the problem is formulated as one of optimally controlling a storage process with markov additive discoveries the optimal value of the resource stock is characterized as the solution of a functional equation and the existence of an optimal consumption policy is established it is shown that in a given environment the optimal consumption rate is increasing and the resource price is decreasing in the level of proven reserves a counterexample is provided to show that better environments may in fact mean higher prices and lower consumption rates finally a variety of examples is given to illustrate the scope and applicability of the general model

monopolistic recycling of oil revenue and intertemporal bias in oil depletion and trade this paper investigates oil depletion and trade when monopolistic oil producers also exercise monopoly power in the capital market a two period model views collusively organized oil producers with an initial trade surplus and a subsequent deficit when monopoly power in the capital market is applied to the disadvantage of borrowers less oil is initially made available to oil importers than if the interest rate had been competitively determined this depletion bias however is reversed if because of incentives for capital accumulation it is to the advantage of the oil producers to subsidize lending to the oil importers in either case the bias in oil depletion due to monopolistic recycling of oil revenue is greater the more vulnerable are oil importer s incomes to a curtailment of oil supplies 25 references

uncertainty in tax reform the case of an extractive firm abstract since as early as adam smith warnings have been issued concerning the possible harmful effects of uncertainty in tax policy this paper attempts to examine the consequences for an extractive monopolist of i perceived future changes in the probability of tax reform and ii perceived future changes in the firm s expected profitability under the new tax structure the results of this analysis suggest that even the threat of future tax changes can have a significant and lasting impact on the present behavior of extractive firms and the markets in which they operate this arises precisely from the firm s attempt to shift the expected burden or gain in an intertemporally optimal manner moreover while the paper focuses on tax policy the model is amenable to interpretation in the case of potential nationalization or in the case of any regulatory scheme that might modify the firm s future profit function as an example of the latter it has recently been suggested that an atmospheric users charge be levied on the carbon content of fuels as they leave the mine or wellhead the potential impact on extractive firms of this proposed tax on coal oil and gas designed to raise revenues to help reduce emissions as well as the u s budget deficit could be examined with the help of a similar model finally the impact on opec of uncertainty surrounding events in the middle east could similarly be modeled

sequential development and exploitation of an exhaustible resource do monopoly rights promote conservation this paper explores the problem of sequential exploitation of exhaustible resources by a monopolist when a setup cost must be incurred to access the next pool under certain circumstances the monopolist will always follow a more conservationist path of extraction and delay the introduction of new resource pools compared to a social planner however with other forms of consumer demand the monopolist may exhaust the resource more quickly especially if many new options will follow these results may apply especially to depletable resources like antibiotics or biotech products for which significant research and development costs are required followed by monopoly rights conferred by patents

scarcity growth and r d abstract the limits to economic growth due to resource scarcity can be alleviated only by the development of backstop substitutes this paper combines resource based economic growth with r d to reduce the cost of backstop technologies characterizing the entire dynamics of optimal growth and r d processes we find that an economy s growth prospects depend on its type as determined by its production technology and learning ability and by its knowledge capital endowment a wide variety of growth patterns emerges ranging from cases in which an economy that without r d eventually stagnates converges to a steady state is diverted by r d onto a path of sustained growth to cases in which r d is not warranted resource scarcity is shown to encourage r d due to the increased reliance on the backstop technology

entry deterrence and signaling in a nonrenewable resource model abstract we analyze a nonrenewable resource model in which an incumbent firm faces potential entry from a rival firm the incumbent has private information about its stock size but the rival can observe extraction with observable extraction and unobservable stock the rival can use extraction as a signal about stock from which it can infer whether entry is likely to be profitable we characterize the necessary conditions for pooling and separating perfect bayesian equilibria in a signaling game of resource extraction and provide examples of each we show that the incumbent will often prefer pooling to separating even though welfare is higher in separating equilibrium

a simple characterization of the optimal extraction policy of a non renewable resource when extraction cost is stock independent abstract this note provides a simple characterization of the optimal extraction of a non renewable resource the proposed formula determines the solution in its feedback form it is shown to hold for a large class of models as long as the utility is stock independent

deregulation as a switch of regime price effects using a modified hotelling rule abstract concern over rising energy prices has led to support for government intervention to regulate the price of domestic non renewable energy resources however us policy makers appear to be looking more towards competition rather than regulation to decide who will provide energy resources and how these will be priced this paper models possible dynamic price effects occasioned by the removal of a regulatory constraint the analysis focuses on a government decision to eliminate binding price ceilings on a non renewable energy substitute when the incumbent resource is monopolistically controlled using deregulation of natural gas as an illustration under certain conditions it is shown that one will get continuity of marginal revenue and a fall in the world price following decontrol the expiration of a patent or a decision to grant mineral rights on federal land in general however the model suggests that both marginal revenue and prices will be discontinuous and that the discontinuity is likely to result in a fall in price

optimal combination of pollution prevention and abatement policies the case of agricultural drainage the adoption of pollution prevention and abatement practices is examined in the context of a model of exhaustible resource use with a backstop technology for the sake of concreteness the paper focuses on the problem of water logging caused by the subsurface accumulation of agricultural drainwater in modelling this problem a region s underground capacity to store drainwater is considered an exhaustible resource while the installation of subsurface drainage is viewed as the corresponding backstop technology or abatement practice the exhaustible resource is typically over exploited due to common access problems which forces a suboptimally fast adoption of the abatement practice conservationist irrigation technologies such as drip and sprinkler systems tend to reduce drainwater generation and their adoption could increase social welfare by delaying the abatement stage public policies are suggested to increase the adoption of such conservationist technologies data from california is used to illustrate the results and to demonstrate the efficacy of the model for policy purposes while the setting used for the analysis in this paper is quite specific i e water logging the same general modelling ideas may be applied to many other problems of environmental degradation

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

firm size distributions in an industry with constrained resources we propose an equilibrium model for firm size distribution in an industry with a constrained essential input the model applies when the population of firms is small and homogeneous and the supply of the necessary input factor is perfectly inelastic we argue that although the gibrat assumption obtains this does not result in the lognormal distribution because of the entries exits and mergers of firms competing for the inelastic essential resource using our own 32 year database of firms we test the broken stick or random ordered interval model that we call the whitworth distribution successfully applied by others to a number of data sets including the abundances of bird species we propose the whitworth as the basic model of the equilibrium distribution of firm sizes for such supply constrained industries and find it fits our 31 year database best

optimal consumption and the timing of the resolution of uncertainty abstract as is well known consumers want to accumulate precautionary savings in the face of income risks when their marginal utility is convex prudence in this paper we explore the effect of the timing of the resolution of income uncertainty on savings an agent faces uncertainty about his income at date t 2 what is the effect of being informed that the uncertainty will be resolved at date t 1 on the consumption at date t we show that the effect is positive if and only if marginal utility is convex prudence when either the risk free rate is equal to the rate of pure preference for the present or when the utility function is hara the intuition is that an early resolution of uncertainty allows for time diversifying the risk it therefore plays a role similar to a reduction of the income risk whose effect on savings is negative under prudence

a martingale characterization of the price of a nonrenewable resource with decisions involving uncertainty abstract this paper presents a general model of nonrenewable resource consumption and exploration decisions involving uncertainty about the time of occurrence of an event such as exhaustion stock discovery or a substitute development the resulting price process is characterized in terms of necessary and sufficient conditions under which the price is expected to rise at a rate equal to greater than or less than the discount rate the general model is illustrated and the price process and the optimal decisions are characterized by examining the three types of uncertainty indicated above

measuring the incidence of insider trading a comment on shin in a recent paper in this journal shin i 993 presents a model of the impact of insider trading on the bid ask spread in horse races he then estimates his model using an iterative procedure on linearised versions of his equations the purpose of this note is to show that an exact nonlinear estimation procedure is available and is very simply implemented we start from shin s equation 5 p i i47 which links the price of a ticket on horse i 7t to the incidence of insider trading z and the probabilities of wins by each horse ps

are renewable energy policies climate friendly the role of capacity constraints and market power abstract this paper studies the impacts of renewable energy support policies on energy prices fossil fuel supply and thus carbon emissions from fossil fuels such supports are climate friendly if the renewables are already competitive against fossil fuels but if the renewables are not yet competitive the climate change impacts are often ambiguous and are sensitive to capacity constraints of renewables production and to the fossil fuel market structure if the renewables do not have capacity constraints then the subsidies are subject to the green paradox under perfect competition but might be climate friendly under monopoly supports for capacity constrained renewables under perfect competition lead to more current fossil fuel supply but delay fossil fuel exhaustion time and these effects are reversed under monopoly our results highlight the importance of considering the long term effects on fossil fuel supply as well as capacity constraints and market power in designing renewable energy policies and evaluating their carbon footprints

economic insights in ecological compensations market analysis with an empirical application to the finnish economy abstract biodiversity is decreasing at an alarming rate current policies focus on the most valuable species and habitats but cannot stop the degradation occurring in less valuable habitats one solution is offsetting the loss of biodiversity caused by development projects the basic idea of biodiversity offsetting is simple a developer must provide an improvement in biodiversity so that the lost ecological value is compensated for a banking mechanism for offsetting entails a third party providing offsets for developers to purchase and thus an offset market emerges we develop an equilibrium model to analyse the offset markets and apply the model to the finnish economy and three selected boreal habitats we examine how the market depends on trading ratios the presence of an intermediary and the realization of risks associated with uncertainty an intermediary can facilitate the market participants meeting each other with minimal transaction costs and safeguard against risks the results show that the size of the offset markets could potentially be quite considerable and providing offsets could be a profitable business for landowners in finland the outcome of the restoration investment and a possible time delay between biodiversity losses and gains impact the trading ratios and thus have a major impact on the market equilibrium an intermediary may significantly decrease the costs of compensation for developers provided that it can provide mature offsets when needed

inventories as an asset the volatility of copper prices the spot price of copper metal is known to be extremely volatile from 1958 to 1980 the mean monthly average price was 0 49 per pound in constant 1967 dollars while the standard deviation of month to month changes in the real price was 0 06 claims to copper inventories are traded on the london metal exchange lme a competitive world asset market this paper empirically investigates the dynamics of copper spot prices on the lme focusing on the rate of return to holding copper metal and on the implications of inventory stockouts for this rate of return we make one major departure from the standard economic theory of exhaustible resources 2 instead of assuming constant short run marginal cost srmc we incorporate rising srmc of extraction into the model 3 this technological assumption provides an economic motive for production smoothing by holding inventories equilibrium inventory holdings ameliorates rising srmc by moving extraction to low srmc time periods we show that this amelioration is imperfect because of inventory stockouts when stockouts can occur the spot price of a resource reflects transient shocks to its scarcity value as well as permanent shifts more specifically the economic motive for inventory holding affects the equilibrium price dynamics of exhaustible resources in two ways first as long as positive inventories are being held their holders should earn the competitive rate of return thus the price of extracted resource should rise at the rate of interest in expected value this result differs from most recent theoretical studies of exhaustible resources which conclude that price minus marginal extraction cost should rise at the rate of

renewable resource management with a backstop substitute and nonautonomous prices abstract policies for managing a renewable resource in the presence of a backstop substitute are analyzed conditions for renewable and backstop resources to be relevant are discussed the extinction issue the role of myopic decision rules and the optimality of singular arc policies are examined with nonautonomous prices

alternative approaches to economic environmental interactions abstract the key questions raised by recent developments in resource and environmental economics have been what useful economic functions does the environment provide and how are these functions affected by the process of economic environmental interaction this paper distinguishes between two different formal approaches to answering these questions the more conventional approach which is concerned with the optimal allocation of economically valuable exhaustible resources and an alternative analysis that considers the trade off between on the one hand environmental quality and on the other resource depletion and waste generation by the economic process to illustrate and extend the latter approach a model is constructed to show how this trade off might lead to continuously declining environmental quality and a future ecological constraint society must therefore optimally allocate output between consumption and services to improve the environment and choose between increased capital accumulation and environmental degradation although strict application of such a model may be limited it has wider implications for the role of technological change and the value of the environment in any system experiencing deteriorating environmental quality

sustainable management of fossil fuels a dynamic stochastic optimization approach with jump diffusion abstract this paper deals with a relevant aspect of energy modeling i e fossil fuels management the issue is faced by using purely operational research techniques which are suitable in this context in particular a dynamic stochastic optimization model is developed to optimally determine use and stock of resources to be employed in consumption and investments in a wide economic sense human and physical capital r d etc it is assumed that a sustainability criterion drives the optimality rules i e decisions are also grounded on the well being of future generations the policymaker maximizes an aggregated intergenerational expected utility under the dilemma of present consumption conservation of natural resources for the future in reference to standard environmental economic theory jump diffusion dynamics for the stock of natural resources and infinite time horizon are assumed extensive numerical experiments complete the analysis and contribute to determine fossil fuels management policies showing that long term investments make the difference for the well being of present and future generations

contractual difficulties in environmental management the case of wetland mitigation banking abstract this paper offers a principal agent model of private contracting in mitigation banking aimed at protection of wetland acreage and habitat bio diversity and physical functions of us wetlands while it is straightforward to design an incentive contract such a contract may be incapable of achieving the federally mandated objective of no net loss of wetland functions through wetland mitigation there may be failure of contract design or execution also considered are several institutional mechanisms that may promote the convergence of private contracting and attainment mandated wetland protection these include greater oversight by the government payment of subsidies greater accuracy in the identification of actual wetland quality by the principal and use of several other incentive alignment mechanisms

optimal timing of technology adoption abstract in a dynamic programming framework this paper investigates the optimal timing of technology adoption by a competitive firm when technology choice is irreversible and the firm faces a stochastic innovation process with uncertainties about both the speed of the arrival and the degree of improvement of new technologies a numerical example illustrates how the optimal timing decision is affected by changes in parameter values reflecting market conditions the firm s initial technological attributes and the characteristics of the stochastic innovation process some of these effects turn out to be in sharp contrast to common intuition contrasting the optimal decision rule derived here with the rule obtained under the net present value shows that the former implies a slower pace of adoption than implied by the latter the optimal decision rule is generalized for the case of multiple technology switches and it is shown that for all the switching decisions except the last one the optimal rule satisfies the net present value criterion

embargo threats and the management of emergency reserves this paper develops a model of a country that can import oil in normal times but is subject to random trade disruptions to mitigate the effects of these disruptions some of the imported oil is stockpiled there are two kinds of uncertainty involved the date at which an embargo will be imposed is not known in advance and given that an embargo has been imposed the date at which it will end is uncertain optimal behavior is analyzed by means of dynamic programming 13 references

restoring wetlands through wetlands mitigation banks this paper offers the first economic analysis of wetlands mitigation banks the banks are a new alternative for restoration of wetlands by developers before receiving regulatory approval for future development of wetlands in the same watershed a stochastic optimal control model is developed which incorporates ecological uncertainty of wetlands restoration the model helps in examining the decisions of how much to invest in a wetlands mitigation bank the model is calibrated with data from california bioeconomic parameters numerical simulation of the model provides a sensitivity analysis of how model parameters of restoration costs stochastic biological growth interest rate and the market value of credits affect the trajectory of investment and the optimal stopping state of wetlands quality when the investment ends the analysis reveals that restoration of the whole site will occur when there is a reduction in restoration costs an increase in biological uncertainty or an increase in the value of wetlands credits continued restoration is harder to justify with a higher interest rate

pricing and depletion of an exhaustible resource when there is anticipation of trade disruption this paper considers pricing and depletion of an exhaustible nonrenewable resource in an economy wherein domestic consumption is provided for by supplementing extraction from the economy s own resource stock with imports the future supply of which is not assured the socially optimal response to threat of trade disruption is a more conservationist depletion program for the domestic resource stock than would be called for if import supplies were assured to persist competitive domestic firms adopt the socially optimal conversationist program however firms anticipating domestic market power after the disruption of import supplies are revealed to overextract the domestic resource stock 33 references 2 figures

market evidence against widespread point shaving in college basketball abstract this paper proposes using market based information to investigate the likelihood of widespread point shaving in college basketball games with strong favorites information embodied in pre game money lines facilitates the calculation of the market s expectation that the game will end with a strong favorite winning but not covering the point spread a result deemed suspicious in previous studies additional market based information embodied in second half lines reveal how the market s expectation about second half play differs from pre game expectations applying our methodology to college basketball reduces previous estimates of the percentage of games thought to be consistent with potential point shaving to insignificant levels our approach can apply to other sports in which strong favorites are common

optimal pricing use and exploration of uncertain natural resource stocks abstract units of natural resources to be called mines are assumed distributed over an unexplored territory according to a poisson process in space at any moment total reserves and unexplored land are given society can determine the rate of consumption and the rate of exploration reserves are drawn down by consumption and increased by discoveries made during exploration the amount of unexplored land is decreased by exploration at any moment the payoff of society is a concave function of consumption less a linear function of exploration with future payoffs discounted optimal policies are considered and in particular it is shown for a large amount of unexplored land the shadow prices of reserves and of unexplored land move in random cycles but show only a slight upward tread thereby casting some light on the failure of mineral prices to rise at the market rate of interest

the economics of exploration for non renewable resources abstract the literature on exploration for non renewable resources is surveyed following a brief synopsis in section 2 section 3 focuses on issues related to the world market for resources section 4 considers more microeconomic supply related issues linked to the exploration of the small region or play section 5 turns to the small but growing literature on exploration as a learning process related to r d the latter sections pay particular attention to empirical and policy aspects

on the ideological foundations of environmental policy abstract this paper is an investigation into the philosophies of science inherent in the development of two schools of thought in environmental economics neoclassical and steady state analysis it attempts to gain clearer insight into the direction of inquiry and the policy options of each by contrasting their perspective metaeconomic structures the sets of first principles shaping theoretical development the ontology of steady state analysis while accepting the general principle of rationality differs from neoclassicism by including the ecological interaction of people with nature as an element of spicies being the cosmology of the two schools differs in the steady statists take the laws of thermodynamics and the principle of biospheric assimilation of first principles questions of absolute scarcity take primacy over the neoclassical focus on problems of relative scarcity in policy analysis consequently steady state theorists view the environment problem in its global dimensions over a longer time continuum the result is that steady state policy prescriptions are not necessarily market bound and may transcend the intstitutional arrangements common in western capitalist societies

the hotelling rule in non renewable resource economics a reassessment harold hotelling s 1931 contribution is known for providing a basic principle the hotelling rule to the economics of non renewable resources nearly ninety years later empirical tests conclude the rule lacks empirical validity requiring strong amendments to describe the long term aggregate behavior of its target object on the basis of hotelling s unpublished archival material this paper revisits the place given to the hotelling rule in non renewable resource economics our reconstruction shows that hotelling s 1931 paper has been misinterpreted from the outset the hotelling rule was not valid for mineral resources in contrast the consideration of two inherent geological constraints alongside exhaustibility offered the opportunity for an alternative basic framework capable to generate bell shaped and u shaped equilibrium trajectories for supplies and prices respectively inspired by this unknown aspect of hotelling s work brought to light by our archival investigation we sketch this alternative basic model enabling non renewable resource economics to circumvent the empirical shortfalls of the hotelling rule

energy transition under irreversibility a two sector approach in this paper we analyze the optimal energy transition of a two sector economy energy and final goods with exhaustible oil reserves a renewable source of energy and a pollution threat the latter corresponds to a pollution threshold above which a part of the capital is lost following flooding for instance we show that the optimal energy transition path may correspond to a corner regime in which the economy starts using both resources then crosses the pollution threshold and therefore loses a part of its capital at the end the sole adoption of the renewable energy is optimal only in the long run this result is in line with the asymptotic energy transition arguments stating that the transition to clean energy may happen only in the long run we also show that economy reduces the use of energy resource as long as the productivity of capital and energy services is high therefore public policies should promote investments in energy innovation that targets productive sector home appliances and buildings and helps to save both money and energy we extend the present model to allow for additional investment in energy saving technologies our main results show that this additional investment favours the energy transition in the sense that it increases the time within which the economy may experience the catastrophe and the welfare of the society for policy implications economic instruments such as taxes on dirty energy subsidies on clean energy or incentives for energy saving technologies need to be implemented in order to promote the energy transition this is particularly important for developing countries that mostly rely on polluting energy resources and are the most vulnerable to climate change but those economic instruments should be carefully designed in line with the asymptotic energy transition result

monopoly extraction of an exhaustible resource with two markets although much has been written about monopoly extraction of natural resources the case of a resource being sold in two separate markets has escaped notice we find that a monopolist facing two different iso elastic demand schedules extracts more rapidly than the social planner whether or not arbitrage prevents price discrimination between markets jel classification d42 q3 extraction monopoliste d une ressource epuisable quand il y a deux marches meme si l on a ecrit beaucoup a propos de l extraction monopoliste de ressources naturelles epuisables il semble que le cas d une ressource vendue dans deux marches separes n a pas ete traite on decouvre qu un monopoleur faisant face a deux cedules de demande iso elastiques differentes extrait la ressource plus rapidement que le planificateur social que l arbitrage entre les marches empeche ou non la discrimination par les prix

information and exhaustible resources a bayesian analysis abstract we develop a continuous time bayesian model of investment in information about an exhaustible resource because of the way that information affects expectations the deterministic hotelling rule turns out to be more appropriate as a description of how resource owners forecast the value of their stocks than as a predictor of observed changes in the resource price a flow of information generates both unanticipated changes in expectations which cause the mean rate of change in the resource price to deviate systematically from the deterministic hotelling rule and reductions in uncertainty which do not affect the hotelling prediction

hotelling under pressure we show that oil production from existing wells in texas does not respond to oil prices while drilling activity and costs respond strongly to explain these facts we reformulate hotelling s class

the relationship between two indicators of insider trading in british racetrack betting this paper examines whether a measure of insider trading in betting markets derived from the shin 1993 model is significantly related in samples of horse and greyhound races to an alternative independently derived indicator of insider activity suggested by crafts 1985 namely plunges in the odds offered against a particular competitor on the day of a race the analysis suggests that there is a significant relationship

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

innovation and the dynamics of global warming global warming and the carbon cycle are a dynamic system with positive feedbacks fossil fuels are exhaustible resources these two facts mean that innovation in clean energy technology rather than mitigating global warming can lead to a permanently higher temperature path this paper explores the impact of innovation in the simplest model linking the economic theory of exhaustible resources with positive feedback dynamics in the carbon cycle

time discounting in harold hotelling s approach to natural resource economics the unsolved ethical question the paper focuses on harold hotelling s approach to time discounting in the context of the intertemporal allocation of exhaustible natural resources in 1931 hotelling introduces a positive discount rate when dealing with the social value or total utility derived from a resource his position was in contrast with early economic literature on conservation as well as with the point of view of frank ramsey according to whom time discounting expressed an unjustified preference for the welfare of present generations over that of future ones hence it has been argued that hotelling dismissed ethical concerns using archival material we find that for hotelling economic questions should not be restricted to issues of economic efficiency that his choice to discount utility which he considered as analogous to a concrete benefit at the interest rate is compatible with ramsey s position and more broadly that this choice does not preclude an ethical position on the desirable distribution of exhaustible resources through time to hotelling ethics is implemented by politics through fiscal corrections of the interest rate revisiting hotelling on the articulation between ethics allocative efficiency and policies allows us to rethink the way we do that in current models using time discounting