The exploration and investment decisions for a resource producing firm are largely irreversible, not now-or-never propositions, and have uncertain future payoffs. As such, we show that, for such decisions to proceed, the expected discounted future returns to these decisions must outweigh the...

This paper considers an optimal control problem for the dynamics of an exhaustible natural resource model, the optimal control being the price over time to maximize the total present value of a parameterized social welfare function under the assumption that a substitute become available at a...

We analyze a dynamic game between a buyer and a seller of an exhaustible resource. The seller chooses resource supply; the buyer can pay a fixed cost to invent a perfect substitute for the resource at any time. In closed-loop equilibrium, the buyer adopts the substitute when the resource is...

Empirical tests of the theory of exhaustible resources have come to conflicting conclusions concerning the validity of the theory to exhaustible resources to explain owners' production decisions. This paper develops the theoretical framework, alternative measures of the unobservable in situ...

This paper studies the implications for reserve lifetime and related quantities in a continuous time model of resource extraction under uncertainty. Both the resource price and the extracted amount are assumed to follow stochastic processes. Reserve lifetime is determined by the...

Mineral and material commodities are essential inputs to economic production, but there have been periodical concerns about mineral scarcity. However, there has been no systematic recent study that has determined whether mineral commodities have become scarcer over the longer run. Here we...

We add an extractive sector to an endogenous growth model of expanding varieties and directed technological change. Extractive firms reduce the stock of non-renewable resources through extraction, but also increase the stock through R&D investment in extraction technology. Our model replicates...

This study uses the methods of experimental economics to investigate possible reasons for the lack of empirical support for the Hotelling rule for nonrenewable resources. We argue that as long as resource stocks are large enough, producers may choose to (partially) ignore the dynamic component...

This paper extends the classical exhaustible-resource/stock-pollution model with the irreversibility of pollution decay. Within this framework, we answer the question how the potential irreversibility of pollution affects the extraction path. We investigate the conditions under which the economy...