Would hotelling kill the electric car?

In this paper, we show that the potential for endogenous technological change in alternative energy sources may alter the behaviour of resource-owning firms. When technological progress in an alternative energy source can occur through learning-by-doing, resource owners face competing incentives to extract rents from the resource and to prevent expansion of the new technology. We show that in such a context, it is not necessarily the case that scarcity-driven higher traditional energy prices over time will induce alternative energy supply as resources are exhausted. Rather, we show that as we increase the learning potential in the substitute technology, lower equilibrium energy prices prevail and there may be increased resource extraction and greenhouse gas emissions. We show that the effectiveness and the incidence of emissions reduction policies may be altered by increased potential for technological change. Our results suggest that treating finite resource rents as endogenous consequences of both technological progress and policy changes will be important for the accurate assessment of climate change policy.     

On equilibrium in resource markets with scale economies and stochastic prices

In this paper, I show the existence and the characteristics of equilibrium in a non-renewable resource market where extraction costs are non-convex and market price is subject to stochastic shocks, an empirically relevant setting. In my model firms may be motivated to hold inventories to facilitate production smoothing, which allows them to continue producing at a smooth pace at any instant when extraction ceases, e.g. when reserves are exhausted. This aspect of the model then supports a competitive equilibrium in the presence of non-convex costs. Casual empirical evidence is provided that supports the central features of my model for a variety of non-renewable resources, lending credence to the explanation for equilibrium I propose.     

On equilibrium in resource markets with scale economies and stochastic prices

In this paper, I show the existence and the characteristics of equilibrium in a non-renewable resource market where extraction costs are non-convex and market price is subject to stochastic shocks, an empirically relevant setting. In my model firms may be motivated to hold inventories to facilitate production smoothing, which allows them to continue producing at a smooth pace at any instant when extraction ceases, e.g. when reserves are exhausted. This aspect of the model then supports a competitive equilibrium in the presence of non-convex costs. Casual empirical evidence is provided that supports the central features of my model for a variety of non-renewable resources, lending credence to the explanation for equilibrium I propose.     

Extraction timing and economic incentives for geothermal reservoir management

This article considers the best extraction program for a hot water geothermal reservoir with emphasis on the optimal time to begin extraction. Using a production function relating the rate of extraction to the quality of produced energy, an operational model is presented that gives the best time to begin production, the optimal pumping rate and the best planning horizon. Also investigated is the effect of economic parameters and incentives on these decision variables. This paper studies some means by which regulatory agencies can influence the timing and rate of exploitation of geothermal energy by manipulating economic incentives, and provides information for both public and private decision making in the management of this resource.     

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.     

Set-up costs and the existence of competitive equilibrium when extraction capacity is limited

Although set-up costs are prevalent and substantial in natural resource extraction, it is known that a Walrasian competitive equilibrium cannot exist in simple extraction models with set-up costs. This paper demonstrates that this result is sensitive to the assumption of unlimited extraction capacity and derives sufficient conditions for existence. An equilibrium exists if extraction is limited such that each firm earns sufficient surplus to cover its set-up costs or if firms choose extraction capacity subject to non-increasing returns. The resulting competitive equilibrium price either grows at the rate of interest when total extraction is below industry capacity or is constant when industry capacity is fully utilized. In the equilibrium, identical deposits are opened simultaneously, and set-up costs for new deposits are incurred when the industry has excess capacity rather than when capacity is fully utilized.     

Non-compliance and the quota price in an ITQ fishery

This paper examines the effects of non-compliance on quota demands and the equilibrium quota price in an ITQ fishery. I show that whereas lower quota prices are implied unambiguously by expected penalties which are a function of the absolute violation size, the expectation of penalties based upon relative violations of quota demands can, under certain conditions, produce higher quota prices than in a compliant quota market. If there are both compliant and non-compliant firms in the fishery, the result would then be a shift in quota demand from compliant to non-compliant firms, rather than the reverse. The findings are generally applicable to quota markets in other industries, including pollution permit markets.     

The social and ecological determinants of common pool resource sustainability

We study a dynamic common pool resource game in which current resource stock depends on resource extraction in the previous period. Our model shows that for a sufficiently high regrowth rate, there is no commons dilemma: the resource will be preserved indefinitely in equilibrium. Lower growth rates lead to depletion. Laboratory tests of the model indicate that favorable ecological characteristics are necessary but insufficient to encourage effective CPR governance. Before the game, we elicit individual willingness to follow a costly rule. Only the presence of enough rule-followers preserves the resource given favorable ecological conditions.     

The effects on welfare of the imposition of individual transferable quotas on a heterogeneous fishing fleet

This paper examines the determination of effort levels, the rental price of quotas and the number of participants in a fishery managed with a total allowable catch and individual transferable quotas. How these variables change is determined for three phases of the management process. Potential participants in the fishery are assumed to be heterogeneous in their catching capabilities so that almost all active fishers earn positive net profits from fishing activities. It is shown that these quasirents are reduced during any of the management phases considered here. The impact of free allocations of permanent quota rights on fishers’ welfare is also considered. This may increase the welfare of all fishers if the allocation is based on catch history. However, an example is provided where the welfare of some highliners is reduced when the allocation is based on effort history.     

Private aquaculture and commercial fisheries: Bioeconomics of salmon ranching

This paper shows that common property problems associated with open access salmon ranching in the absence of a commercial fishery result in inefficiency characterized by overstocking. The presence of an open access fishery presents additional common property problems which will inhibit the development of fish ranching. At prices where salmon ranching does occur, the open access commercial fishery will tend to overexploit the natural fish stock to a greater extent than if there were no salmon ranching. It is shown that there exists a range of prices where both fish stocks can coexist with open access. However, there is a limit price above which the natural stock will be driven to extinction through overfishing stimulated by stock from salmon ranchers. The range of prices under which both species can coexist can be increased through either restrictions of fishery effort or reducing the catchability of aquacultured stock. Cooperative management of both aquaculture and commercial fishing results in profits from both activities and will not cause extinction of the natural fish stock.     

Regulating activities with catastrophic environmental effects

In this paper a catastrophe is an unforeseen event which reduces society's level of consumption to zero. Two types of catastrophe are analyzed. In one case catastrophe results in a temporary reduction in utility; in the other, catastrophe is irreversible and is tantamount to truncating the planning horizon. The first case characterizes certain types of pollution problems such as radioactive pollution produced by a nuclear power plant. An example of an irreversible catastrophe is the inadvertent depletion of a nonrenewable resource for which no substitute is available.     

Non-renewable resource prices: Deterministic or stochastic trends?

In this paper, we examine temporal properties of 11 natural resource real price series from 1870 to 1990. Recent studies by Ahrens and Sharma [Trends in natural resource commodity prices: deterministic or stochastic? J. Environ. Econom. Manage. 33(1997)59–74], Berck and Roberts [Natural resource prices: will they ever turn up? J. Environ. Econom. Manage. 31(1996)65–78], and Slade [Grade selection under uncertainty: least cost last and other anomalies, J. Environ. Econom. Manage. 15(1988)189–205], among others, find that many non-renewable resource prices have a stochastic trend. We revisit this issue by employing a Lagrangian multiplier unit root test that allows for two endogenously determined structural breaks with and without a quadratic trend. Contrary to previous research, we find evidence against the unit root hypothesis for all price series. Our findings support characterizing natural resource prices as stationary around deterministic trends with structural breaks. We additionally show that both pre-testing for unit roots with breaks and allowing for breaks in the forecast model can improve forecast accuracy. Overall, the results in this paper are important in both a positive and normative sense; without an appropriate understanding of the dynamics of a time series, empirical verification of theories, forecasting, and proper inference are potentially fruitless.     

Mineral depletion with cost as the extraction limit: A model applied to the behavior of prices in the nickel industry

This article follows papers by Pindyck and Heal and Barrow in applying a Hotelling-type depletion model to a particular resource industry: in this case that of nickel. By means of the model the resource rent per ton of nickel is calculated as the proper index of extractive resource scarcity. The time path of this resource rent indicates that the model explains industry behavior well and that, as in the two previous studies, depletion has been an important determinant of prices and rents in this industry.     

Sustainable development: the challenge of implementation

This paper focuses on efforts to produce an operational definition of the concept of ‘sustainable development’ as articulated by the 1992 United Nations Conference on Environment and Development (UNCED). ‘Sustainability’ has become an increasingly significant environmental issue; the problems in articulating a workable concept will differ among nations and international organizations attempting to define the term. Additionally, the term encompasses the varied fields of ecology, philosophy, and economics; every discipline imparts its own bias. Various definitions are provided and the significance and difficulty of developing an operational definition of Sustainable development is discussed. For example, sustainable development has become a ‘needs'-oriented term, an entitlement that priority should be given to the needs of the world's poor. Some argue that living standards which go beyond the basic minimum are sustainable only if consumption standards everywhere have regard for long-term sustainability. Scientifically, sustainability involves replicability and regeneration through an unforeseeable future. When prices reflect social cost and there are no externalities, optimal choices will be made between present and future consumption. Much of the debate involving sustainability involves deep-rooted fears or phobias, e.g. resource depletion, ‘energy crises’ and ‘timber crises’.     

A note on the effect of tax brackets on non-renewable resource extraction

Tax brackets are a common feature of non-renewable resource taxes. Although the introduction of brackets would seem to be an innocuous way of approximating a non-linear tax system, the dynamic effects are surprising. This paper shows that the presence of tax brackets in both a severance tax system and a profits tax system can induce the extractive firm to depart from the well-known monotonically declining extraction profile and to choose instead a profile which has constant extraction rates over some interval of time.     

The optimal use of non-renewable resources: The theory of extraction

The traditional theory of exhaustion is revised to allow for long run capital mobility. This model is extended to include the impact of cumulative environmental damages on the optimal path of resource use. Models and optimal markets are then analyzed for cases where minerals are available over a continuum of quality and where recycling ameliorates inevitable exhaustion of non-renewable resources. Finally, the impact of technological change on long run trends in mineral prices is examined.     

Spatial and temporal modeling of community non-timber forest extraction

This paper examines the interaction of spatial and dynamic aspects of resource extraction from forests by local people. Highly cyclical and varied across space and time, the patterns of resource extraction resulting from the spatial–temporal model bear little resemblance to the patterns drawn from focusing either on spatial or temporal aspects of extraction alone. Ignoring this variability inaccurately depicts villagers’ dependence on different parts of the forest and could result in inappropriate policies. Similarly, the spatial links in extraction decisions imply that policies imposed in one area can have unintended consequences in other areas. Combining the spatial–temporal model with a measure of success in community forest management—the ability to avoid open-access resource degradation—characterizes the impact of incomplete property rights on patterns of resource extraction and stocks.     

Evaluation procedures for restored land

Release of land for mineral extraction is often dependent on the quality of the restoration which can be achieved. It follows, therefore, that some means of judging the success of restoration is required, especially where restoration is an agricultural after use.In order to assess whether land has been well restored it is therefore necessary to know what the physical characteristics of the land were before mineral extraction took place, what changes are likely to have occurred to the land and soil as a result of mineral extraction, and lastly whether the physical characteristics of the land are as good as when the land was last used for agriculture. Most permissions however, were granted before there was a requirement to record pre-site conditions so it is impossible to know what the site was like when it was last used for agriculture. Furthermore, this paper will argue that land quality is only one factor which should be considered in assessing the quality of restored land, other factors for example, visual integration, farm management must also be taken into consideration. This paper will outline the existing evaluation procedures used by the Ministry of Agriculture, Fisheries & Food and Minerals Planners and suggest developing an evaluation procedure which considers various dimensions of restored land namely soil and land quality, visual integration and the management and productivity of restored land. This evaluation procedure has been applied to seventeen study sites of sand and gravel pits. The paper will indicate whether the evaluation procedure successfully classified these sites or not.     

Entry Deterrence and Signaling in a Nonrenewable Resource Model

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.     

Dynamic resource management under the risk of regime shifts

This paper provides a framework through which a dynamic resource management problem with potential regime shifts can be analyzed both in a strategic environment and from a social planner?s perspective. Based on a fairly general model, a condition for a precautionary policy is discussed. By applying the framework to a common-property resource problem with a linear production technology, we illustrate how the qualitative as well as quantitative nature of equilibrium is altered due to the possibility of regime shifts. In particular, when the risk is endogenously affected by the players? behavior, potential regime shifts can facilitate the precautionary management of resources as long as the resource stock is in good shape. As the stock of resource becomes scarce, however, the precautionary effect vanishes and more aggressive resource exploitation emerges. The impacts of irreversibility on the equilibrium behavior are highlighted. It is also shown that there can exist a resource-depletion trap in which a regime shift, once it happens, triggers a continuous decline of resource stock no matter which regime materializes in the subsequent periods.