The Optimal Exploration and Production of Nonrenewable Resources

@article{Pindyck, abstract = {Most studies of nonrenewable resource production and pricing assume there is a fixed reserve base to be exploited over time, but in fact, with economic incentives reserves can be increased. Here we treat the reserve base as the basis for production and exploratory activity as the means of increasing or maintaining reserves. "Potential reserves" are unlimited, but as depletion ensues, given amounts of exploratory activity result in ever smaller discoveries. Given these constraints, resource producers must simultaneously determine their optimal rates of exploratory activity and production. We solve this problem for competitive and monopolistic markets and show that if the initial reserve endowment is small, the price profile will be U-shaped; at first production will increase as reserves are developed, and later production will decline as both exploratory activity and the discovery rate fall.}, author = {Pindyck, Robert S.}, citeulike-article-id = {3173729}, doi = {10.2307/1828412}, issn = {00223808}, journal = {The Journal of Political Economy}, keywords = {agent-based}, number = {5}, pages = {841--861}, posted-at = {2008-08-29 18:58:55}, priority = {2}, publisher = {The University of Chicago Press}, title = {The Optimal Exploration and Production of Nonrenewable Resources}, url = {http://dx.doi.org/10.2307/1828412}, volume = {86}, year = {1978} }

TY - JOUR ID - Pindyck L3 - citeulike-article-id:3173729 N2 - Most studies of nonrenewable resource production and pricing assume there is a fixed reserve base to be exploited over time, but in fact, with economic incentives reserves can be increased. Here we treat the reserve base as the basis for production and exploratory activity as the means of increasing or maintaining reserves. "Potential reserves" are unlimited, but as depletion ensues, given amounts of exploratory activity result in ever smaller discoveries. Given these constraints, resource producers must simultaneously determine their optimal rates of exploratory activity and production. We solve this problem for competitive and monopolistic markets and show that if the initial reserve endowment is small, the price profile will be U-shaped; at first production will increase as reserves are developed, and later production will decline as both exploratory activity and the discovery rate fall. IS - 5 JF - The Journal of Political Economy SN - 00223808 EP - 861 TI - The Optimal Exploration and Production of Nonrenewable Resources PB - The University of Chicago Press VL - 86 SP - 841 KW - agent-based AU - Pindyck, Robert PY - 1978/// UR - http://dx.doi.org/10.2307/1828412 ER -