Information and exhaustible resources: A Bayesian analysis

The Economics of Exploration for Non‐renewable Resources

“…Under conditions of uncertainty, using cumulative extraction and discoveries rather than remaining reserves and unexplored lands would seem a better way to represent the effect, even though stock and depletion effects may seem equivalent because under certainty the two approaches are mirror images of each other. l5 Moreover, aggregate influences and reservoir influences should not be confounded (Uhler, 1979; Livernois and Uhler, 1987; Swierzbinski and Mendelsohn, 1989). Pindyck (1980) is consistent in his use of single-reservoir geological concepts in his market model, and refers to extending known reservoirs (p. 1207), which is analogous to on-site exploration; his empirical example (Pindyck, 1978) is drawn from a single region.…”

“…Here, exploration serves not only to increase reserves, but to provide information, reducing the variance in reserve levels and thereby contributing to planning the optimal consumption pattern. The learning aspect of this model has been generalized by Swierzbinski and Mendelsohn (1987). The result is a modification of time paths of price, extraction and exploration effort.…”

“…The price of reserves is depressed, however, when reserves jump up upon episodic exploration. The reason for this is the set-up-type of cost of discrete reserve additions; compare Hartwick, Kemp and Long (1986) and Swierzbinski and Mendelsohn (1987). As a result, the shadow price of land and reserves rises over time even though the shadow price of land does not follow the 'r-per-cent' rule.…”

What Does the Empirical Work Inspired by Solow's The Economics of Resources or the Resources of Economics Tell Us?

“…Even if the Hotelling rule provides market participants the best available prediction of future resource prices, unanticipated changes in expectations due to the arrival of information will cause the actual time paths of resource prices to deviate from the Hotelling predictions (Swierzbinski & Mendelsohn, 1989).…”

On the Portents of Peak Oil (and Other Indicators of Resource Scarcity)

“…As Swierzbinski and Mendelsohn (1989) and Krautkraemer (1998) point out, the flow of information constantly generates unanticipated changes in expectations regarding relative scarcity of the resource, which means that the historical time series data should not be expected to conform to an equilibrium path, even though expected future prices may do so.…”