The supply of non‐renewable resources

Abstract

There exists no formal treatment of non-renewable resource (NRR) supply, systematically deriving quantity as function of price. We establish instantaneous restricted (fixed reserves) and unrestricted NRR supply functions. The supply of a NRR at any date and location depends not only on the local contemporary price of the resource but also on prices at all other dates and locations. Besides the usual law of supply, which characterizes the own-price effect, cross-price effects have their own law. They can be decomposed into a substitution effect and a stock compensation effect. We show that the substitution effect always dominates: a price increase at some point in space and time causes NRR supply to decrease at all other points. Our new-although orthodoxsetting takes into account not only NRR supply limitations but also the heterogeneity of NRR deposits, and the endogeneity of their development and opening. Our analysis extends to NRRs the partial-equilibrium analysis of demand and supply policies. Thereby, it provides a generalization of results about policy-induced changes on NRR markets.Résumé. L'offre de ressources non renouvelables. Aucune étude ne caractérise de manière formelle l'offre de ressources non renouvelables (RNR), c'est-à-dire leur quantité produite en fonction de leur prix. Nous établissons les fonctions d'offre restreinte (à réserves données) et non-restreinte des RNR. A chaque date et sur chaque marché, leur offre dépend non seulement du prix courant mais aussi du prix aux autres dates et sur les autres marchés. Au-delà de la loi de l'offre habituelle, qui caractérise l'effet prix propre, les effets prix croisés obéissent à leur propre loi. Ces derniers consistent en un effet substitution et en un effet compensation qui est lié au stock de ressource. Nous montrons que l'effet substitution domine toujours l'effet compensation : un accroissement du prix à une date sur un marché cause une réduction de l'offre d'une RNR aux autres dates

Should the global community welcome new oil discoveries?

“…Note, however, that alternative setups, such as inDaubanes and Lasserre (2019) where producers first choose when and how much reserves are developed, can lead to simultaneous extraction of resource with differing extraction costs. 9 Some of the latest papers have been reformulating Hotelling's model, e.g.…”