Resource Prices and Planning Horizons

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThis paper shows that a seemingly simple assumption, regarding the time horizon of economic agents, can reconcile the puzzling long run price dynamics of exhaustible resources such as oil, gas and metals. It does so by exploring the possibility that economic agents use a rolling planning horizon, meaning that they make a plan over a …nite number of years but update this plan on a regular basis. This behavior can be observed in the business plans of …rms, in US social security and in the extraction decisions of natural resource owners. While leaving other macroeconomic models intact, when used in models of natural resources rolling horizon planning alters the outcomes. It has the e¤ect of removing the scarcity consideration of resource owners, thus letting only operating costs and demand determine the extraction rate. This implies that extraction will be non-decreasing and resource prices non-increasing for a long period of time and that there will be no connection between the price growth and the interest rate -in line with the trends of a majority of exhaustible resources in the last century. A calibration of the model to the oil market yields a price which closely …ts the gradually falling real oil price after WWII and the sharply increasing price after 1998. It further suggests that, while long run scarcity was not an important parameter on the oil market in the 20th century, it has been important in shaping the oil price from around 1998 and onwards.JEL classi…cation: D80, Q31, Q41

Resource prices and planning horizons

“…The results can be generalized by enriching the model across several dimensions (see Spiro, 2012). As a benchmark, consider an in…nite horizon resource extraction model with extraction costs and a mass 1 of identical pro…t maximizing resource owners.…”

“…In every year q a representative agent solves the following problem choosing extraction (E) and forecasting the resource price, interest rate and labor wage while taking the rest of the variables as exogenous. An analytical treatment of this model can be found in Spiro (2012).…”

“…t = 8). This implies that roughly half of all 4 3 An earlier version of the paper (Spiro, 2012) included an exercise which deals slightly better with endogeneity issues. That exercise examined how the price changes due to large reserve revisions (interpreted as unexpected news).…”

Leading the unwilling: Unilateral strategies to prevent arctic oil exploration

“…4 Our calibration in Section 5 suggests that the fall in extraction costs following entry in the Arctic may be sizeable enough to warrant strategic considerations. 5 While the oil price is notoriously difficult to predict and the market often has biases in the predictions (Hamilton, 2009;Hart and Spiro, 2011;Spiro, 2014) the appearance of shale oil on the market has depressed the price. This factor is likely to be important over the next decades.…”

Strategic Uncertainty in Markets for Nonrenewable Resources: A Level-k Approach

“…For example, the opponent may face political pressure to maximize current revenue and produce at maximal capacity or otherwise be too focused on maximizing present revenue rather than discounted profits (see, e.g., [8][9][10]). In such cases, agents must again form beliefs about the possible strategies chosen by the opponent and maximize their expected profits given these beliefs.…”