on measuring and comparing total factor productivities in extractive and non extractive sectors we explain why comparing the total factor productivities of extractive and non extractive sectors is likely to be misleading then we propose a correction and implement it for the case of asbestos where it turns out to make a significant difference

green accounting for an externality pollution at a mine this paper takes a value added approach to green accounting at an individual microeconomic unit a mine capacities forextraction and for abatement of pollution are chosen subject to anenvironmental regulation the implications for accounting for resource andenvironmental degradation are discussed depreciation is not quantitativelyunique but can be compared qualitatively with a condition involving shadowprices the costs of defensive expenditures contribute to increasing greennnp but depreciation of the resource is a charge against gnp in computinggreen nnp income from capital is the return on the undepreciated values ofextractive capacity abatement capacity and the resource and is a part ofnet domestic income

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

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

risk unemployment and the stock market a rare event based explanation of labor market volatility what is the driving force behind the cyclical behavior of unemployment and vacancies what is the relation between job creation incentives of firms and stock market valuations we answer these questions in a model with time varying risk modeled as a small and variable probability of an economic disaster a high probability implies greater risk and lower future growth lowering the incentives of firms to invest in hiring during periods of high risk stock market valuations are low and unemployment rises the model thus explains volatility in equity and labor markets and the relation between the two first draft november 15 2014 kilic mkilic wharton upenn edu wachter jwachter wharton upenn edu we are grateful to andy abel gabriel chodorow reich max croce giuliano curatola zvi eckstein joao gomes urban jermann christian opp sang byung seo ctirad slavik mathieu taschereau dumouchel michael wachter nancy ran xu amir yaron and seminar participants at the wharton school at the trans atlantic doctoral conference at the western finance association meetings and at the safe asset pricing workshop for helpful comments

opec market failure or power failure abstract the actions of opec and saudi arabia are discussed in terms of their objectives and their technical and social constraints it is concluded 1 that opec does not act as a cartel and 2 that hotelling s rule is not an important feature of pricing or production opec s more specifically saudi arabia s ideal policy is to keep price moderate to try to assure a market for their high reserves over the long run such an action would require heavy investments in capacity including in excess capacity for times of interruption of supply from other countries as in the 1990s and for times of high demand as in the 2000s the action may be inconsistent with other objectives and in any case may be too difficult to achieve

capacity choice and the theory of the mine when extraction from mineral deposits is constrained byfixed capacity an r per cent rule holds this deposit specific rule however is more partial than hotelling s rule in that it is followed byprice takers and does not require price to adjust to produce equilibrium toobtain the resource rent to which the rule applies the shadow value ofcapacity must be subtracted from the usual net price i e price lessshort run marginal cost but the shadow value of capacity cannot becalculated from common depreciation formulas an alternative method ofcalculating the shadow values is derived the shadow value of reserves maybe increasing in the level of initial reserves if there are increasingreturns to installing capacity the value of the resource is not equal tothe discounted resource rent

should we be worried about the green paradox announcement effects of the acid rain program this paper presents the first empirical test of the green paradox hypothesis according to which well intended but imperfectly implemented environmental policies may lead to detrimental outcomes due to supply side responses we use the introduction of the acid rain program in the u s as a case study the theory predicts that owners of coal deposits expecting future sales to decline would supply more of their resource between the announcement of the acid rain program and its implementation moreover the incentive to increase supply would be stronger for owners of high sulfur coal this would all else equal induce an increase in sulfur dioxide emissions using data on prices heat input and sulfur content of coal delivered to u s power plants we find strong evidence of a price decrease and of an increase in the sulfur premium some indication that the amount of coal used might have increased and no evidence of fuel switching towards higher sulfur coal overall our evidence suggests that while the mechanism indicated by the theory might be at work market conditions and concurrent regulation largely prevented a green paradox from arising these results have implications for the design of climate policies

no bubble condition model free tests in housing markets we test for the existence of housing bubbles associated with a failure of the transversality condition that requires the present value of payments occurring infinitely far in the future to be zero the most prominent such bubble is the classic rational bubble we study housing markets in the united kingdom and singapore where residential property ownership takes the form of either leaseholds or freeholds leaseholds are finite maturity pre paid and tradeable ownership contracts with maturities often exceeding 700 years freeholds are infinite maturity ownership contracts the price difference between leaseholds with extremely long maturities and freeholds reflects the present value of a claim to the freehold after leasehold expiry and is thus a direct empirical measure of the transversality condition we estimate this price difference and find no evidence of failures of the transversality condition in housing markets in the u k and singapore even during periods when a sizable bubble was regularly thought to be present

unilateral climate policy and the green paradox extraction costs matter i analyze the effect of unilateral climate policies in a two country model where fossil fuel extraction costs depend on both current extraction and remaining stock and where a constant marginal cost clean substitute is available an intensification of climate policy in the country with an initially stricter policy does not increase early fossil fuel extraction i e there is no weak green paradox or the present value of pollution costs i e there is no strong green paradox if energy demand in that country is initially met with a mix of fossil fuel and a substitute whether a stricter climate policy in the country with an initially laxer policy causes a weak green paradox depends on the price elasticity of energy demand and the strength of the flow and stock dependence of extraction costs if the reduction of total extraction is sufficiently strong it overcompensates for a weak green paradox with respect to pollution costs thus a weak green paradox does not necessarily imply a strong green paradox due to stock dependence politique climatique unilaterale et paradoxe vert l incidence des couts d extraction l article analyse l effet des politiques climatiques unilaterales dans un modele a deux pays ou les couts d extraction de combustibles fossiles dependent a la fois de l extraction actuelle et du stock residuel et ou la disponibilite d un substitut energetique propre et constant a cout marginal demeure une intensification des politiques climatiques dans le pays de pair avec une politique initialement plus stricte n augmente ni l extraction precoce des combustibles fossiles c est a dire qu il n y a pas de paradoxe vert faible ni la valeur actuelles des couts de pollution c est a dire qu il n y a pas de paradoxe vert accru x00ab pour autant que la demande en energie dans ce pays est initialement satisfaite par une combinaison d un combustible fossile et d un substitut qu une politique climatique plus stricte dans ce pays dote d une politique initialement plus laxiste entrane un paradoxe vert moins prononce depend de l elasticite par rapport au prix de la demande d energie de l importance du flux et de la dependance en matiere de stock relativement aux couts d extraction si une reduction de l extraction totale est suffisamment forte elle surcompensera un paradoxe vert limite relativement aux couts de pollution ainsi un faible paradoxe vert n engendre pas necessairement un fort paradoxe vert en raison de la dependance au stock

necessary conditions for infinite horizon discounted two stage optimal control problems abstract in many situations in economics one would like to analyse the optimal timing of switching between alternative and consecutive regimes a natural framework for such an analysis seems to be one of multi stage optimal control problems where the switching instants between regimes are endogenously determined the existing literature considers only the case of two stage optimal control problems with finite horizon however in many cases it seems more appropriate to consider a problem with an infinite horizon by deriving the appropriate necessary conditions for such a problem we generalise the methodology in analysing endogenous regime switches

job destruction and propagation of shocks this paper considers propagation of aggregate shocks in a dynamic general equilibrium model with labor market matching and endogenous job destruction cyclical fluctuations in the job destruction rate magnify the output effects of shocks as well as making them much more persistent interactions between capital adjustment and the job destruction rate play an important role in generating persistence propagation effects are shown to be quantitatively substantial when the model is calibrated using job flow data incorporating costly capital adjustment leads to significantly greater propagation

valuing mineral reserves when capacity constrains production abstract we add a capacity constraint and heterogeneous reserves to the hotelling valuation principle this produces a more general version of the principle that is more consistent with empirical valuations while retaining the underlying relationship between net price and reserve value

valuing petroleum reserves using current net price i introduction the hotelling valuation principle hvp states that when valuing any depleting mineral reserve one can simply multiply the current net price price less unit extraction cost associated with those reserves by the quantity of reserves 1 v sub s lambda sub s r sub s where lambda sub s p sub s c sub s is the current time s net price and r sub s is current recoverable reserves in place miller and upton 1985a the derivation combines discounted cash flow dcf analysis with hotelling s 1931 result that in equilibrium the net price of a non renewable resource must rise at the rate of interest with net cash flows being inflated and discounted at the same rate the result is intuitive and its simplicity has drawn the attention of mineral appraisers and national income accounting agencies 1 the u s department of commerce for instance uses equation 1 as one method of valuing the stock and depletion of the nation s mineral assets carson 1994 miller and upton 1985a 24 empirically test the principle against oil and gas reserve values imputed from firm balance sheets and conclude that it provides not only reasonably good descriptions of the structure of actual market values of a sample of u s petroleum producing companies but substantially better descriptions than the publicly available alternative appraisals based on much the same underlying raw data they claim that the abstractions of the hvp constant marginal cost perfect information and perfect competition do not appear to invalidate the empirical performance and so miller and upton propose that equation 1 remains theoretically intact even when these abstractions are relaxed further investigation however has found the hvp to severely overvalue oil and gas reserves for example watkins 1992 finds that the formula overvalues oil and gas reserve transactions by an average of 85 2 indeed in miller and upton s original work the imputed reserve values are less than the hvp values in 81 of 94 valuations in the first data set and in 95 of 98 in a second data set in many cases by 50 or more 3 several empirical studies have found that the coefficient on lambda sub s r sub s in equation 1 is in the order of one half this tendency of the hvp to overstate the value of petroleum reserves is recognized by users of the principle such as bartelmus et al 1994 who nevertheless continue to rely on it for reserve valuation several economists have attempted to explain the overvaluation magliolo 1986 investigates data sources and tax effects cairns and davis 1998 and davis and moore 1998 show that for the case of hard rock mining capacity constraints on production produce a coefficient on lambda sub s r sub s that is less than one others have instead rejected not only the hvp as a valuation tool but also the entire hotelling theory underlying the principle for example adelman 1993 and watkins 1992 argue that i for practical purposes there is no binding resource stock constraint for oil and gas as explicitly assumed by hotelling 1931 and ii oil and gas net price data do not reveal hotelling s r rule mcdonald 1994 adds that regulation of well spacing and extraction rates is another important facet of oil production that is not modeled by hotelling and that this could be a cause of the empirical failure of the principle still others propose that oil reserves cannot be valued accurately using a discounted cash flow framework rather the analyst must also incorporate an option value which arises whenever producers can adjust production through time in response to realizations of stochastic events such as price fluctuations brennan and schwartz 1985 paddock siegel and smith 1988 and smit 1997 this position is valid but it does not explain the empirical failures of equation 1

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 supply of non renewable resources there exists no formal treatment of non renewable resource nrr supply systematically deriving quantity as function of price we establish instantaneous restricted fixed reserves and unrestricted nrr supply functions the supply of a nrr at any date and location not only depends on the local contemporary price of the resource but also on prices at all other dates and locations besides the usual law of supply which characterizes the own price effect cross price effects have their own law they can be decomposed into a substitution effect and a stock compensation effect we show that the substitution effect always dominates a price increase at some point in space and time causes nrr supply to decrease at all other points this new but orthodox supply setting extends to nrrs the partial equilibrium analysis of demand and supply policies thereby it provides a generalization of many results about policy induced changes on nrr markets the properties of restricted and unrestricted supply functions are characterized for hotelling homogeneous as well as ricardian non homogeneous reserves for a single deposit as well as for several deposits that endogenously come into production or cease to be active

the new approach to wilderness preservation through benefit cost analysis over the last 15 years economists of resources for the future led by john krutilla have been developing a new approach to wilderness preservation this paper offers a concise exposition of their approach and adds a few new steps the basic ingredient of the new approach is a perception of declining net benefits of wilderness development and rising net benefits of wilderness preservation over time these alter the entire shape of the benefit cost analysis of potential development the new steps involve reversibility postponability and recognition of multiple interest rates

extraction capacity and the optimal order of extraction the least cost first extraction rule for deposits with different extraction costs previously has been shown to be invalid in general equilibrium this paper demonstrates that this rule also does not hold in partial equilibrium when extraction capacity is limited necessary and sufficient conditions for several surprising extraction orders are presented if extraction from a high cost resource is constrained it may be optimal to begin extraction from a high cost deposit or backstop strictly before extracting from a lower cost deposit if extraction from a low cost resource is limited it may be optimal to exhaust a high cost deposit strictly before the low cost deposit is exhausted or to abandon extraction temporarily from a high cost deposit and then to exhaust it later the analysis demonstrates how extraction constraints affect the order of extraction and shows that certain cost reversals are caused by limited extraction capacity rather than by the general equilibrium definition of extraction costs

the green paradox of the economics of exhaustible resources abstract the green paradox states that an increasing tax on emissions of carbon dioxide consonant with the expected increase in their marginal damages may induce oil producers to shift their production toward the present and thereby to exacerbate the problem of climatic change the model is based on hotelling models of resource use that do not take the natural and technical features of oil production into account natural features include the decline of production through time according to a decline curve technical features include the requirement to sink investment in productive capacity a model of a profit maximizing firm indicates that if these features are taken into account the prediction of the green paradox is unlikely

option premiums in mineral asset pricing are they important mineral assets consistently trade at market values greater than their discounted cash flow dcf values one explanation is that dcf analysis does not and cannot incorporate the asset value generated by asset management under uncertainty this paper surveys the attempts to empirically quantify the option premium associated with optimal mineral asset management the option premium appears to explain at most half of the observed gap between dcf value and market value and adds at most 3 percent to a mineral asset s gross worth asset management option premiums therefore have only a second order impact on mineral asset pricing

environmental and resource economics a canadian retrospective the paper reviews research contributions to environmental and resource economics by scholars in canada we focus mainly on work from the past 25 years but also highlight earlier pathbreaking work we begin by looking at broad trends in research both internationally and within canada we then review canadian contributions to various topics in the field canadians have played a leading role in the development of the field especially in resource economics international environmental economics and the valuation of environmental amenities

the grey paradox how fossil fuel owners can benefit from carbon taxation abstract this paper considers the distributional impact of optimal carbon taxation on fossil fuel owners a carbon emitting exhaustible resource competes with a dirtier abundant resource and a clean backstop a time dependent carbon tax is set to optimally use these resources under a cap constraint over co 2 atmospheric concentration as the cap is tightened the dirtier resource becomes less competitive compared to the exhaustible resource the competition effect but the timing and duration of extraction of the exhaustible resource is modified the timing effect we provide analytical expressions of these effects and determine conditions over size of reserves pollution contents extraction costs and demand elasticity such that the exhaustible resource owners profits increase as the ceiling is tightened calibrations for the transport and power sectors suggest that the profits of conventional oil and natural gas owners increase compared to a baseline without regulation for plausible carbon ceiling values

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

optimal pricing of depletable replaceable resources the case of landfill tipping fees abstract we develop a general model for pricing a depletable replaceable asset and discuss its application in determining optimal tipping fees for a sanitary landfill we show that the optimal fee includes a component that grows at the real interest rate as space in the landfill is depleted and then drops when a new landfill is built because the scarcity cost of landfill space increases as the landfill is filled it may be optimal to delay a waste reduction program such as recycling composting or incineration until the landfill is partially full

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

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

economic growth with bubbles this paper presents a stylized model of economic growth with bubbles this model views asset price bubbles as a market generated device to moderate the effects of frictions in financial markets improving the allocation of investments and raising the capital stock and welfare the model illustrates various channels through which asset price bubbles affect the incentives for innovation and economic reforms and therefore the rate of economic growth the model also offers a new perspective on the effects of financial development on asset price bubbles and economic growth

sufficient conditions for a class of investment problems abstract sufficient conditions are obtained for a generalization of the control problem of bolza hestenes in which various functions may not be concave in the control parameter s it is applicable to problems of investment in fixed capacity where there are economies of scale

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

internalization an event study test abstract the internalization theory of multinational firms proposes that direct international investment occurs when a firm has information related intangible assets with public good properties we find that firms with characteristics suggesting the presence of information based assets experience a significantly positive stock price reaction upon announcing a foreign acquisition on the other hand firms apparently lacking such assets experience at best zero abnormal returns upon announcing overseas acquisitions

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

on using current information to value hard rock mineral properties we reformulate the hotelling valuation principle to take into account the special production characteristics of hard rock minerals the data requirements of the revised model are still parsimonious but the resultant valuations are some 40 below those produced by the hotelling valuation principle our valuation equations are also user friendly allowing the valuer to specify price and cost expectations that need not comply with the hotelling rule empirically our model provides estimates of market value for producing mineral properties that are more accurate than those produced by the hotelling valuation principle

the conservationist s dilemma it is typically thought that conservation of natural resources is encouraged by low interest rates however when capital goods are used to extract the resource low interest rates may discourage rather than encourage conservation using a model of a capacity constrained extractive industry in competitive equilibrium i find the relationship between the initial rate of exploitation and the interest rate if capital is so important that for sufficiently high interest rates the industry is nonviable the graph of initial quantity versus the interest rate is u shaped the traditional result holds at small interest rates but not at large ones copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

modeling nonrenewable resources use with multiple demands and multiple sources the theoretical literature following hotelling j polit econ 39 137 175 1931 assumed that all nonrenewable resource needs are satisfied by one type of resource e g oil extractible at different per unit costs this formulation implicitly assumes that all users are the same distance from each resource pool that all users can switch costlessly from one type of resource to another e g liquid fossil fuels to coal or vice versa and that all users are subject to the same regulations these assumptions imply as herfindahl extractive resources and taxation university of wisconsin press madison pp 63 90 1967 showed that in competitive equilibrium all users will exhaust a lower cost resource completely before beginning to extract a higher cost resource simultaneous extraction of different grades of oil or of oil and coal should never occur in trying to apply the single demand curve model during the last twenty years several teams of authors have independently found a need to generalize it to account for users differing in their 1 location 2 resource needs or 3 regulatory environment each research team found that herfindahl s strong unrealistic conclusion disappears in the generalized model in its place a weaker herfindahl result emerges since each research team focussed on a different application however it has not always been clear that everyone has been describing the same generalized model the goal in this paper is to integrate the findings of these teams and to present an easily accessible generalization of the nonrenewable resource model to multiple demand curves

rational asset pricing bubbles this paper provides a fairly systematic study of general economic conditions under which rational asset pricing bubbles may arise in an intertemporal competitive equilibrium framework our main results are concerned with nonexistence of asset pricing bubbles in those economies these results imply that the conditions under which bubbles are possible including some well known examples of monetary equilibria are relatively fragile this paper is concerned with the conditions under which asset prices in an intertemporal competitive equilibrium are equal to the present value of the streams of future dividends to which each asset represents a claim according to a central result of the theory of finance this is very generally true in the case of economies with trading at only a finite sequence of dates as long as there are no restrictions upon transactions other than that associated with possible incom pleteness of the set of securities that are traded the result is sometimes called the fundamental theorem of asset pricing here we consider the extent to which such a result continues to be valid in the case of trading over an infinite horizon it has often been observed in the econometric literature on asset pricing bubbles that it is possible in principle for the price of a perpetuity and the dividends on that security to satisfy at all times a present value relation for one period holding returns while the security s price nonetheless does not equal the present value of the stream of dividends expected over the infinite future in such a case the price of the perpetuity is said to involve a bubble component 2 joint stochastic processes for which this component is nonzero are sometimes argued to characterize existing assets for a recent example see froot and obstfeld 1991 but such an inference depends upon aspects of the stochastic

strike when the force is with you optimal stopping with application to resource equilibria optimal investment in a nonrenewable resource project occurs when the rate of increase of the project s forward value falls to the force of interest this stopping rule yields a financial interpretation of resource quality as being a property of the project rather than of individual units of reserves it also leads to re interpretations of a rent as the present value of the project rather than of units of reserves and b hotelling s insight as not a rule for the path of rents but an equilibrium algorithm for price the analysis is extended to sequential development of pesticides antibiotics and forests

the optimal timing of an exhaustible reversible wilderness development project decisions about wilderness development projects are almost always reached on a nowor never basis the entrepreneur developer seeks to undertake a project as soon as possible and the environmentalist preservationist tries to prevent it from ever occurring the decision process encourages this dichotomization some agency legislature or court listens to both views and declares one side the winner 1 in essence such a procedure restricts the choice to the two extreme points of what should logically be a continuous set these notes seek to illuminate the correct procedures for deciding when to undertake a wilderness development project from this more general view of the problem the usual decisions now or never emerge simply as possible corner solutions advocates of wilderness preservation have often in the past recommended postponement of a development project but on the grounds of uncertainty about the future benefits that will be derived from the preserved wilderness indeed there are two kinds of uncertainty one many of the uses of wilderness are unpriced or seriously underpriced which means that markets provide inaccurate if any information about willingness to pay and that conceptually and empirically more tenuous nonmarket estimators must be utilized 2 and two future uses of wilderness may be dramatically different in kind and not just amount and these may be currently unfathomable not to mention unquantifiable accordingly the expected benefits of an irreversible wilderness development

monetary valuation of insurance against flood risk under climate change climate change is projected to increase the risk of natural disasters such as floods and storms in certain regions this is likely to raise the demand for natural disaster insurance we present a stated preference survey using choice modeling with mixed logit estimation methods in order to examine the effects of climate change and the availability of government compensation on the demand for flood insurance by dutch homeowners currently no private insurance against flood damage is offered in the netherlands the results indicate that there are opportunities for the development of a flood insurance market 2012 by the economics department of the university of pennsylvania and the osaka university institute of social and economic research association

endogenous growth with a limited fossil fuel extraction capacity campbell 1980 and following authors have discussed a limited resource extraction capacity as an augmentation of the well known hotelling model we integrate a limited extraction capacity and related investments in the endogenous growth model of tsur and zemel 2005 to study its effect on economic development the capacity constraint gives rise to three effects on the one hand higher energy costs and the reallocation of production towards capacity investments decrease production available for consumption research and or capital investments energy costs and reallocation effect on the other hand research investments may increase which boosts available production research effect depending on the capital endowment and the strength of the effects long run consumption may be boosted or depressed in particular the capacity constraint may render everlasting consumption growth non optimal in a resource rich economy furthermore we find that capacity investments may be postponed to later points in time if the capital endowment is high

housing booms and busts labor market opportunities and college attendance we study how the recent housing boom and bust affected college enrollment during the 2000s we exploit cross city variation in local housing booms which improved labor market opportunities for young men and women we find that the boom lowered college enrollment with effects concentrated at two year colleges the decline in enrollment during the boom was generally reversed during the bust however attainment remains persistently low for particular cohorts suggesting that reduced educational attainment is an enduring effect of the recent housing cycle the housing boom can account for approximately 25 percent of the recent slowdown in college attainment

the macroeconomics of labor and credit market imperfections labour market frictions are not the only possible source of high unemployment credit market imperfections driven by microeconomic frictions and influenced by macroeconomic factors could also be to blame to develop this idea in a simple and tractable macroeconomic model we treat credit and labour market imperfections in a symmetrical way accordingly we introduce specificity in credit relationships and assume that credit to potential entrepreneurs is rationed due to endogenous search frictions in the spirit of diamond 1990 these imperfections mirror job search frictions in the labour market we study the determination of equilibrium unemployment in the presence of credit market frictions both with exogenous and endogenous wages we explore a number of possible extensions endogenous destruction monetary policy and the short run effects of financial liberalization

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

perspectives on multinational enterprises in emerging economies multinational enterprises mnes play a pivotal role in the development of many emerging economies in consequence they became the focus of scholarly research by economists and policy analysts in contrast international business scholars have been comparatively uninterested in analysing this role of mnes yet they could make important contributions to these debates first studies taking the individual firms as starting point would enhance understanding of the interaction between mnes and the local environment second theories and research methodologies developed in international business research could provide new insights into the dynamics of mnes in emerging economies the objective of this paper is to motivate more international business scholars to engage in research on positive and negative spillovers from foreign direct investment fdi in emerging economy societies to advance this research agenda scholars need to analyse the specific activities and capabilities of the firms involved and the impact of fdi on the broader social and environmental context for management this agenda raises the ethical question to what extent ought businesses to care about their local stakeholders

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

intertemporal depletion of resource sites by spatially distributed users mineral deposits and other exhaustible resources are scattered around the globe as are their users yet the theory for analyzing depletion of such resources assumes that all resource sites and all users are located in the same place when applying the theory therefore one is forced to disregard what often seems to be an important real world consideration our purpose here is to generalize harold hotelling s 1931 theory of exhaustible resources to accommodate situations in which resource sites and their users are spatially distributed our analysis has many applications it can be applied to a conventional exhaustible resource like oil alternatively it can be applied to an unconventional exhaustible resource like scarce landfill space shipments of solid waste to landfills in other states or countries have become a prominent public policy issue eduardo ley et al 2000 finally our analysis can be applied in situations where the space reflects not geographical location but characteristics of the resource e g the sulfur content hardness and so forth of coal which users find distinctive 2 only two theoretical papers in resource economics have introduced spatial considerations 3 jean jacques laffont and michel moreaux 1986 studied the extraction of resources from sites located along a line segment with all users at one end charles kolstad 1994 was the first to consider spatially distributed users in his formulation consumers are distributed uniformly along a line segment with resource sites at each end kolstad s approach although innovative requires that the set of users be parti

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

business groups and social welfare in emerging markets existing evidence and unanswered questions abstract this paper reviews existing studies of the role of emerging market business groups a ubiquitous but poorly understood organizational form i first suggest that understanding the definition of business groups is itself an interesting albeit under studied research issue i then argue that the existing evidence suggests that the performance effects of group affiliation are large and generally positive there is substantial evidence that part of this is due to welfare enhancing functions originating in the idea that groups substitute for missing outside institutions but that part is also due to welfare reducing minority shareholder exploitation evidence is lacking on the extent to which groups facilitate rent seeking or the exercise of market power evidence is also lacking on the extent to which groups hamper the future development of markets the paper identifies areas where research is needed before current competition policy experiments in countries like china india and korea can be evaluated

a simplified exposition of smooth pasting abstract the decision on when to make an irreversible investment is considered as a trade off between the instantaneous size of the net benefit and the time at which it is obtained the benefit can be larger by waiting longer but then it will also have to be more discounted smooth pasting arises as a first order condition for maximum expected profit the relationship to the standard approach is illustrated by a geometric brownian price process

the credibility of a threat to nationalize abstract this paper empirically estimates the credibility of the african national congress s recent threat to nationalize south african mineral assets while south africa s financial press argued that the threat was negatively affecting mineral investment and asset values mining industry executives were confident that the threat was not credible using financial market data i estimate the annual probability of nationalization to have been relatively low at 1 4 although specific to the south african political environment this result can serve as a benchmark when including political risk in applied models of land and natural resource valuation investment timing and resource extraction

trends in natural resource commodity prices an analysis of the time domain abstract this paper attempts to reconcile the theoretical predictions of increasing real prices for nonrenewable natural resource commodities obtained from hotelling style models with the empirical findings of falling prices for these commodities a theoretical model for relative price movements is derived for the case of exogenous technical change and endogenous change in the grade of ores mined the model suggests a u shaped time path for relative prices the implied price movements are tested for all the major metals and fuels and the model parameters are found to be statistically significant for 11 out of the 12 commodities tested

optimal exploration for and exploitation of heterogeneous mineral deposits abstract we model exploration for and production from a multiple deposit nonrenewable resource exploration is viewed as a bayesian process involving learning about undiscovered reserves and is undertaken both to improve the quality of and to replenish known reserves known reserves are not physically defined but depend on the realizations of discrete episodes of exploration elsewhere and on decisions at each instant about the margin between ore to be mined and low grade material to be rejected the appropriate measure of resource scarcity the sustainable level of the contribution of the resource and the treatment of depletion in the national accounts are considered

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

hotelling rents in hotelling space product differentiation in exhaustible resource markets abstract using a hotelling spatial model this paper examines the interrelationship between resource rents in related exhaustible resource markets in a product space context we show that even if two exhaustible resources are not currently in the same market e g coal and oil differential scarcity will link their current scarcity rents this applies analogously in geographic markets another result is that monopoly accelerates depletion of substitutes and may not affect time to depletion of the monopolized resource

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

the role of investment in multiple deposit extraction some results and remaining puzzles abstract papers by olsen and by cairns and lasserre analyze equilibrium in a resource industry where deposit quality varies and where extraction requires capital investment the papers substantially qualify the conventional understanding of such matters as the form of hotelling s rule the role of deposit size the simultaneous extraction from deposits of different quality and the price path the argumentation however a intricate and the crucial role of investment as such a not easily distinguishable we clarify the intuition behind the results bring out the role of the various assumptions and raise important remaining issues

restricting the trash trade in early 1999 the mayor of new york city announced a plan for exporting most of his city s waste about 13 000 tons per day to other states the responses escalated an already growing war of words about interstate waste shipments a pennsylvania state legislator bluntly called the mayor s plan irresponsible and the governor of new jersey labeled it a direct assault on her state a spokesperson for new york city s department of sanitation coolly staked out the city s position you can t stop interstate commerce if virginia is the least expensive place to deliver this solid waste then that is where it is going to go the response was swift various legislators joined environmental activists to send 50 pounds of trash to the mayor s office led by the governor s efforts the virginia general assembly subsequently responded with proposed legislation to restrict significantly imports of waste see r h melton 1998 virginia s legislative proposal came on the heels of numerous similar proposals by other states to which large shipments of waste are transported interstate shipments of waste involve almost the entire nation 47 states export waste and 44 states import waste and represent nearly 1 billion annually in disposal and transportation fees since the early 1990 s these shipments have increased by more than 30 percent as officials in importing states have sought to curb these flows the u s supreme court has repeatedly struck down their proposed restrictions as violations of the interstate commerce clause in response the congress has advanced proposals to exempt waste from jurisdiction of that clause to date however very little is known about the positive and normative effects of the various proposals to restrict municipal solid waste transshipments how are the effects of restrictions likely to be distributed among the owners of waste disposal facilities and the users of these services given that the northeast is a net exporter and the midwest is a net importer of waste are the effects likely to differ among regions of the country in this paper we model the interstate market for municipal solid waste and evaluate the potential economic effects of public policies proposed to restrict waste flows these restrictions include local and state requirements stipulating where waste must be landfilled prohibitions on the import or export of waste across state boundaries quantitative limits on these flows and extra fees levied on imported waste to our knowledge this research is the first to evaluate these proposals quantitatively we develop both a conceptual and a computable economic model of the use over time of spatially differentiated resources characteristics which well describe the nation s landfill facilities landfills rather than recycling or other disposal options are the dominant destination of most interstate shipments the model characterizes the efficient intertemporal allocation of spatially distributed waste disposal capacity among users who are also spatially distributed in addition

the fundamental problem of accounting the fundamental problem of economic accounting is to determine a forward looking schedule of rentals user costs or quasi rents to provide for the recovery of irreversible investments the method derived herein relaxes some restrictive assumptions that are common in capital theory there can be multiple forms of comprehensive capital accounting for all forms of capital including tangible and intangible capital is symmetrical the analytical focus becomes one of fixities and frictions and not optimality rentals obey inequalities as opposed to marginal conditions if discounted profit is positive rentals depreciation and capital value are not unique le probleme fondamental de la comptabilite le probleme fondamental de la comptabilite economique est de determiner une cedule des loyers couts d utilisation ou quasi rentes anticipes permettant de recuperer la mise de fonds dans des investissements irreversibles la methode proposee ici relaxe certains postulats restrictifs conventionnels en theorie du capital la comptabilite de toutes les formes de capital y compris le capital tangible et intangible est symetrique la focalisation analytique devient centree sur les fixites et les frictions et non l optimalite si le profit escompte est positif loyers depreciation et valeur du capital ne sont pas uniques

frictional unemployment with stochastic bubbles abstract we show that the volatility puzzle in labor economics shimer 2005 stems from the inability of technology shocks to generate sufficient volatility of firm value we introduce non fundamental shocks to firm value akin to bubbles into an otherwise standard search and matching model when calibrated to stock market data stochastic bubbles significantly improve the ability of the matching model to quantitatively explain the volatility of the us labor market an extension with multiple sectors improves the persistence of simulated labor market variables

considering aquacultural externality in coastal land allocation decisions in india commercial aquaculture in india has come under attack for having caused negative agricultural and environmental impacts this paper formulates an interactive model of non renewable and renewable resources to characterize land allocations between aquaculture and agriculture in ecologically and economically sustainable fashion through an empirical application various economic and policy circumstances that affect the optimal land allocation mix are evaluated the aquaculture industry must address two economic effects off site negative effects on renewable food and other coastal resources and on site self pollution of shrimp ponds current regulatory and land use policies are inadequate to address these effects

optimal land development decisions abstract this research models the development decision when net rents are growing geometrically and uncertainly and capital intensity is variable we derive simple rules for the optimal timing of land development projects based on the commonly used internal rate of return and net present value criteria we show that even under certainty projects are optimally delayed beyond the point where net present value becomes nonnegative if expected cash flows are growing the ability to vary capital intensity also raises the specter of perverse responses where increases in interest rates accelerate investment decisions the positive responses occur when growth rates are high or uncertainty is high