Optimal management of strategic reserves of nonrenewable natural resources |
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Authors: | Eric Bahel |
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Institution: | Department of Economics, Virginia Polytechnic Institute and State University, Blacksburg, VA 24061-0316, United States |
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Abstract: | This paper studies the stockpiling issue for an oil importing country that is likely to suffer embargoes, the occurrence and duration of which are uncertain. I show the existence of a decreasing reserves path that the country wants to attain in order to hedge against these disruptions. Allowing the importing country to invest in R&D in order to free itself from the embargo threat, I determine the optimal effort that should be engaged in research. The incentive to develop a backstop is shown to increase with the depletion of the reserves. |
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Keywords: | Imports Nonrenewable resource Random embargoes Strategic reserves |
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