Exploration,information, and regulation in an exhaustible mineral industry

The paper presents a model of exploration and production in an uncertain environment. Exploration provides a by-product of information that helps predict future finds more accurately. When this information is not equally valued (at the margin) by society and industry, socially inefficient levels of exploration are chosen by industry. In this event, government intervention may be warranted. A regulator could control future prices to encourage industry to select socially preferred levels of production and exploration. Alternatively, by making public varying amounts of exploration information, incentives to industry could be adjusted. Conditions where such regulation might yield sufficient gains to society to offset regulatory costs are considered.