Confuser Cost

The terms “royalty”, “marginal user cost”, and “scarcity rent” are often used interchangeably in resource economics, resulting in considerable confusion. We suggest distinct and meaningful definitions for the terms “royalty”, “marginal user cost”, and “scarcity rent” and discuss the relationships among them. Using the example of extraction fees for leasees, we show how failing to understand the distinct meaning of these terms may lead to policy errors. By constructing a model containing both capital and resources as state variables, we verify that user cost in capital theory is a different concept than marginal user cost in resource economics and suggest a taxonomy to avoid misinterpretation.