Natural Resource Economics; UCLA (Graduate, 1997) Cameron; Minerals

Natural Resource Economics; UCLA (Graduate, 1997) Cameron; Detailed Curriculum; Minerals

MINERALS:

costless production case

backstop technologies
joint solution for initial price and optimal time horizon from reserves constraint and choke price constraint
consequences of too-high discount rates

models with extraction costs: constant marginal costs (Neher)
models with increasing extraction costs but no stock effects, c(x) only (Sweeney)

intuition from calculus of variations for optimal extraction path

models with increasing extraction costs and stock effects, C(x,b)

interpretation of opportunity costs depending on remaining stocks (Sweeney)

optimal extraction with endogenous prices, P(X,t)

review Neher's interpretation (emphasize Hamiltonian approach)
introducing parametric demand curve
derivation of optimal initial price and life of mine from resource
exhaustion equation and choke price attainment equation

competitive equilibrium with Hotelling costs: many firms

order of extraction with deposits with differing costs
scalloped price path with deposits of differing quality

model with Hotelling costs and technical progress (Sweeney approach)
Neher's interpretation of model with technical progress
single competitive firm, no stock effects

relevance of performance test transversality conditions, terminal time shadow price
equivalence of marginal and average extraction cost at terminal time
geometry and intuition
comparative statics for greater resource stocks, higher prices or lower wages

monopoly case (Conrad and Clark versus Neher's competitive case)

comparison of extraction profiles for monopoly versus competitive case (algebraic example CC section 3.2.1)

outline of generalization to multiple firms with differing cost structures (2N+1 equations in 2N+1 unknowns..non-trivial)
Exploration

Conrad and Clark model, 2 state variables (reserves, cumulative discoveries), 2 contol variables (extraction, exploration)
concept of marginal discovery cost
system of four equations of motion
review of computer algorithms for solving for extraction paths

Exercises:

(Conrad & Clark examples translated into GAUSS or EXCEL?)

CC, program 3.1 "Mine Manager's Problem" p. 127
CC, program 3.2 "Problem 3.5.1" p. 137
CC, program 3.3 "Exploration and Extraction" p. 144

Core readings:

N Part IV
CC Ch. 3

Supplemental:

Sweeney, James L, "Economic Theory of Depletable Resources: An Introduction," Chapter 17 in HNREE-III.
Heal, Geoffrey M. "Optimal Resource Depletion Policies," Chapter 18 in HNREE-III.

Other literature:

Devarajan, Shantayanan and Anthony C. Fisher (1981) "Hotelling's 'Economics of Exhaustible Resources': Fifty Years Later," Journal of Economic Literature, v. 19, March, pp. 65-73.
Livernois, J.R. and R.S. Uhler, "Extraction Costs and the Economics of Non-renewable Resources," JPE, 95(1) 1987, pp. 195-203.
Miller, Merton H. and Charles W. Upton (1985) "A Test of the Hotelling Valuation Principle," JPE 93(1), pp. 1-25.
Pindyck, R.S., "The Optimal Exploration and Production of Non-Renewable Resources" JPE, 1978.
Pindyck, R.S., "Gains to Producers from Cartelization of Exhaustible Resources," REStat, 1978, pp. 238-251.
Pindyck, Robert S. (1984) "Uncertainty in the Theory of Renewable Resource Markets," Review of Economic Studies, April, v.51(2), pp. 289-303. (2 copies)
Stiglitz, Joseph E. (1976) "Monopoly and the Rate of Extraction of Exhaustible Rsources," AER, September, pp. 655-661.

Extensions:

Deacon, R.T., "Taxation, Depletion, and Welfare: A Simulation Study of the U.S. Petroleum Resource," JEEM, (24) March 1993, pp. 159-187.
Gamponia, Villamor and Robert Mendelsohn (1985) "The Taxation of Exhaustible Resources," Quarterly Journal of Economics, February, pp. 165-181.
Gately, Dermot (1984) "A Ten-Year Retrospective: OPEC and the World Oil Market," Journal of Economic Literature, September, pp. 1100-1114.
Gaudet, Gerard, and Ali M. Khadr "The Evolution of Natural Resource Prices Under Stochastic Investment Opportunities: An Intertemporal Asset-Pricing Approach," International Economic Review, V. 32(2) May 1991, pp. 441-455. (2 copies)
Halvorsen, R. and T.R. Smith, "A Test of the Theory of Exhaustible Resources," QJE (106) February, 1991, pp. 123-140.
Hartwick, J.M. and P.A. Sadorsky (1990) "Duopoly in Exhaustible Resource Exploration and Extraction," Canadian Journal of Economics, 23(2), May, pp. 276-93.
Hartwick, John M., Murray C. Kemp, and Ngo Van Long (1986) "Set-up Costs and Theory of Exhaustible Resources," JEEM, v. 13, pp. 212-224. (2 copies)
Smith, V. Kerry (1981) "The Empirical Relevance of Hotelling's Model for Natural Resources," Resources and Energy 3, pp. 105-117.
Krautkraemer, J.A., "Taxation, Ore Quality Selection, and the Depletion of a Heterogeneous Deposit of a Nonrenewable Resource," JEEM (18) 1990, pp. 120-135.
Levhari, David, and Nissan Liviatan (1977) "Notes on Hotelling's Economics of Exhaustible Resources," Canadian Journal of Economics, 10(2), May, pp. 177-192.
Libecap, Gary D. and Steven N. Wiggins (1984) "Contractual Responses to the Common Pool: Prorationing of Crude Oil Production," AER, 74(1), pp. 87-98.
Libecap, Gary D. and Steven N. Wiggins (1985) "The Influence of Private Contractual Failure on Regulation: The Case of Oil Field Unitization," JPE, 93(4), pp. 690-714.
Livernois, John R. (1987) "Empirical Evidence on the Characteristics of Extractive Technologies: The Case of Oil," JEEM, 14, 72-86. (2 copies)
McKie, James and Stephen L. McDonald, "Petroleum Conservation in Theory and Practice," QJE, ????, pp. 98-121.
Polasky, S. "The Private and Social Value of Information: Exploration for Exhaustible Resources," JEEM, Vol 23, no.2 (1992) 1-21.
Quyen, N.V. (1991) "Exhaustible Resources: A Theory of Exploration," Review of Economic Studies, July, v. 58(4), pp. 777-789. (2 copies)
Slade, Margaret and Henry Tille, "Hotelling Confronts CAPM: A Test of the Theory of Exhaustible Resources," ??? may not be available (unpublished)
Solow, Robert M. (1974) "Intergenerational Equity and Exhaustible Resources," Review of Economic Studies, Symposium on the Economics of Exhaustible Resources, pp. 29- 45.
Swierzbinski, Joseph E. and Robert Mendelsohn (1989) "Exploration and Exhaustible Resources: The Microfoundations of Aggregate Models," International Economic Review, 30(1) February, pp. 175-186.

Recent Material:

Deacon, Robert T. (1993) "Taxation, Depletion, and Welfare: A Simulation Study of the U.S. Petroleum Resource," JEEM, 24, pp. 159-187.
Hartwick, John M. (1993) "The Generalized r% Rule for Semi-durable Exhaustible Resources," Resource and Energy Economics, 15(2), June, pp. 147-52.
Karp, Larry S. (1993) "Monopoly Extraction of a Durable Non-renewable Resource: Failure of the Coase Conjecture," Economica, 60(237), February, pp. 1-11.
van Geldrop, Jan H. and C.A.A.M Withagen (1993) "General Equilibrium and International Trade with Exhaustible Resources," Journal of International Economics, 34(3,4), May, pp. 341-57.
Ward, Frank A. and Joe Kerkvliet (1993) "Quantifying Exhaustible Resource Theory: An Application to Mineral Taxation Policy," Resource and Energy Economics, 15(2), June, pp. 203-41.
Martin, Wade E. (ed.) (1994) Environmental Economics and the Mining Industry, Boston: Kluwer
Adelman, M.A. (1994) The Economics of Petroleum Supply: Papers by M.A. Adelman, 1962- 1993, Cambridge: MIT Press.
Hartshorn, J.E. (1993) Oil Trade: Politics and Prospects, Cambridge: Cambridge University Press.
Auty, Richard M. (1993) Sustaining Development in Mineral Economies: The Resource Curse Thesis, London and New York: Routledge.
Gilbert, Richard J. (ed.) (1993) The Environment of Oil, Dordrecht: Kluwer Academic
Horsnell, Paul and Mabro, Robert (1993) Oil Markets and Prices: The Brent Market and the Formation of World Oil Prices, Oxford: Oxford University Press

(1997 additions)

Adelman, M. A.; Watkins, G. C., "Reserve Asset Values and the Hotelling Valuation Principle: Further Evidence, Southern Economic Journal 61(3), January 1995, 664-73.
Berck, Peter; Roberts, Mike, "Natural Resource Prices: Will They Ever Turn Up?, Department of Agricultural and Resource Economics, University of Berkeley: 699, July 1995, 699 pages.
Chermak, Janie M.; Patrick, Robert H., "A Well-Based Cost Function and the Economics of Exhaustible Resources: The Case of Natural Gas, JEEM 28(2), March 1995, 174-89.
Farzin, Y. H., "Technological Change and the Dynamics of Resource Scarcity Measures, JEEM 29(1), July 1995, 105-20.
Lozada, Gabriel A., "Existence of Equilibria in Exhaustible Resource Industries: Nonconvexities and Discrete vs. Continuous Time, Journal of Economic Dynamics and Control 20(1 3), Jan. March 1996, 433-44.
Roan, Philip F.; Martin, Wade E., "Optimal Production and Reclamation at a Mine Site with an Ecosystem Constraint, JEEM 30(2), March 1996, 186-98.
Salant, Stephen W., "The Economics of Natural Resource Extraction: A Primer for Development Economists, World Bank Research Observer 10(1), February 1995, 93-111.
Slade, Margaret E., "Uniform Compliance Costs for Mineral Commodities: Who Gains and Who Loses?, Land Economics 72(1), February 1996, 17-32.
Tisato, Peter, "Exhaustible Resource Depletion: A Modified Graphical Approach, Journal of Economic Education 26(1), Winter 1995, 51-57.

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Last updated: January 18,1999
Will be revised during the quarter.
e-mail: tcameron@econ.ucla.edu