We address the long-standing challenge of adding optimal exploration to the classic Hotelling model of a non-renewable resource. We completely solve such a model, using impulse control. The model, extending Arrow and Chang (1982), has two state variables: "proven" reserves and a finite...

Present value calculations require predictions of cash flows both at near and distant future points in time. Such predictions are generally surrounded by considerable uncertainty and may critically depend on assumptions about parameter values as well as the form and stability of the data...