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Neri Salvadori - One of the best experts on this subject based on the ideXlab platform.
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Fixing a numéraire in the Theory of Exhaustible Resources. A Reply to Bidard and Erreygers
OEconomia, 2020Co-Authors: Heinz D. Kurz, Neri SalvadoriAbstract:Christian Bidard and Guido Erreygers (2020) published in this issue of Œconomia a sort of ecumenical reply to criticisms, which over the last two decades have been levelled at their treatment of Exhaustible Resources within what they consider a “classical” framework of the analysis. In a first step they restate the model they began to elaborate in 2001; the original version of the model was the object of a minisymposium in the journal Metroeconomica (2001). In a second step they then reply to...
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On the Theory of Exhaustible Resources: Ricardo vs. Hotelling
2009Co-Authors: Heinz D. Kurz, Neri SalvadoriAbstract:The paper compares, and eventually combines, the approaches of Harold Hotelling and David Ricardo to the theory of Exhaustible Resources. It is argued that Hotelling and Ricardo had in mind worlds that differ in important respects. According to Ricardo the exploitation of deposits of Resources is typically subject to capacity constraints which necessitate the working of differently fertile mines side by side and which imply that the classical theory of differential rent applies. Hotelling on the other hand assumed that the amount of the resource that can be extracted in a given period of time is only constrained by the amount of it left over from the preceding period; his emphasis was therefore on royalties and not differential rent. A model is then elaborated which brings together the insights of both authors and allows one to trace relative prices and income distribution over time.
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CLASSICAL ECONOMICS AND THE PROBLEM OF Exhaustible Resources
Metroeconomica, 2001Co-Authors: Heinz D. Kurz, Neri SalvadoriAbstract:In this paper we discuss in terms of the simple model of Exhaustible Resources proposed by Bidard and Erreygers some of their propositions. The concept of 'real rate of profit' introduced by them is shown to be of no analytical use. It is stressed that the mathematical properties of the economic system under consideration are independent of the numeraire adopted. The classical treatment of Exhaustible Resources in terms of differential rent is shown to be correct under well- defined conditions. It is argued that it is complementary to, rather than incompatible with, the approach which emphasizes that in conditions of free competition the rate of profit obtained by conserving the resource equals that in production processes. In section 1 we shall discuss the mathematical properties of the simple model proposed by Bidard and Erreygers (2001). We shall solve the model for a given real wage rate paid at the beginning of the uniform production period. In section 2 we shall question the usefulness of the concept of a 'real profit rate' suggested by Bidard and Erreygers and their view that the choice of numeraire can have an impact on the mathematical properties of the system under consideration. In sections 3 and 4 we assess some of the propositions put forward by Bidard and Erreygers. Section 3 deals with the fact that any economic model is bound to distort reality in some way and therefore can never be more than an attempt to 'approximate' important features of the latter. This is exemplified by means of the labour theory of value in classical economics, on the one hand, and by Ricardo's assimilation of the case of Exhaustible Resources to that of scarce land and thus its subsumption under the theory of differential rent, on the other. In certain well-specified circumstances royalties are replaced by rents, while in other circumstances neither rents nor royalties play any role. In section 4 we turn to the so-called Hotelling rule. It is stressed that in order for this rule to apply there must be no obstacles whatsoever to the
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Economic dynamics in a simple model with Exhaustible Resources and a given real wage rate
Structural Change and Economic Dynamics, 2000Co-Authors: Heinz D. Kurz, Neri SalvadoriAbstract:The paper elaborates a dynamic input‐output model with Exhaustible Resources. Discoveries of new deposits and technical progress are set aside. It is assumed that there is a ‘backstop technology’ (based on solar energy), which implies that Exhaustible Resources are not indispensable in production. Given the real wage rate and the consumption pattern of profit and royalty recipients, it is then shown that the paths followed by the royalties paid to the owners of Resources, the quantities produced of the different commodities, and their prices are determined once a sequence of nominal profit rates is given. © 2000 Elsevier Science B.V. All rights reserved.
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Exhaustible Resources in a Dynamic Input-Output Model with 'Classical' Features
Economic Systems Research, 1997Co-Authors: Heinz D. Kurz, Neri SalvadoriAbstract:This paper discusses the problem of Exhaustible Resources in a dynamic input-output model with 'classical' features. Both the quantity side and the price and distribution side are discussed. The argument is developed using the simplifying assump- tions that there is no technical progress and that no new deposits of the Exhaustible Resources are discovered. To avoid the ' end-of-world' scenario, it is assumed that there is a 'backstop technology': this implies that Exhaustible Resources are useful but not necessary in the production and reproduction of commodities. A necessary and sufficient condition for the existence of paths of prices, quantities produced, and stocks of Resources converging to the ultralong-period position is determined, provided that the backstop technology exhibits some appropriate properties. In addition, an algorithm to determine these paths is suggested. A numerical example illustrates the findings.
Heinz D. Kurz - One of the best experts on this subject based on the ideXlab platform.
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Fixing a numéraire in the Theory of Exhaustible Resources. A Reply to Bidard and Erreygers
OEconomia, 2020Co-Authors: Heinz D. Kurz, Neri SalvadoriAbstract:Christian Bidard and Guido Erreygers (2020) published in this issue of Œconomia a sort of ecumenical reply to criticisms, which over the last two decades have been levelled at their treatment of Exhaustible Resources within what they consider a “classical” framework of the analysis. In a first step they restate the model they began to elaborate in 2001; the original version of the model was the object of a minisymposium in the journal Metroeconomica (2001). In a second step they then reply to...
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On the Theory of Exhaustible Resources: Ricardo vs. Hotelling
2009Co-Authors: Heinz D. Kurz, Neri SalvadoriAbstract:The paper compares, and eventually combines, the approaches of Harold Hotelling and David Ricardo to the theory of Exhaustible Resources. It is argued that Hotelling and Ricardo had in mind worlds that differ in important respects. According to Ricardo the exploitation of deposits of Resources is typically subject to capacity constraints which necessitate the working of differently fertile mines side by side and which imply that the classical theory of differential rent applies. Hotelling on the other hand assumed that the amount of the resource that can be extracted in a given period of time is only constrained by the amount of it left over from the preceding period; his emphasis was therefore on royalties and not differential rent. A model is then elaborated which brings together the insights of both authors and allows one to trace relative prices and income distribution over time.
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goods and bads sundry observations on joint production waste disposal and renewable and Exhaustible Resources
Progress in Industrial Ecology An International Journal, 2006Co-Authors: Heinz D. KurzAbstract:The paper starts from the premise that nobody intends on purpose to pollute the environment, render animal species extinct, etc. And yet what nobody intends happens all the time. The present paper discusses to what extent the nonintended consequences of purposeful human activities are related to the fact that production is generally joint production, generating both goods and bads. After a brief introduction into the problems at hand with reference to major economists, the implications of the following assumptions are investigated within a simple analytical framework: (a) free disposal and the Rule of Free Goods; (b) costly disposal and the negativity of some price; (c) product-cum-process innovations that render it possible to transform bads into goods. The paper concludes with some observations on renewable and Exhaustible Resources.
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CLASSICAL ECONOMICS AND THE PROBLEM OF Exhaustible Resources
Metroeconomica, 2001Co-Authors: Heinz D. Kurz, Neri SalvadoriAbstract:In this paper we discuss in terms of the simple model of Exhaustible Resources proposed by Bidard and Erreygers some of their propositions. The concept of 'real rate of profit' introduced by them is shown to be of no analytical use. It is stressed that the mathematical properties of the economic system under consideration are independent of the numeraire adopted. The classical treatment of Exhaustible Resources in terms of differential rent is shown to be correct under well- defined conditions. It is argued that it is complementary to, rather than incompatible with, the approach which emphasizes that in conditions of free competition the rate of profit obtained by conserving the resource equals that in production processes. In section 1 we shall discuss the mathematical properties of the simple model proposed by Bidard and Erreygers (2001). We shall solve the model for a given real wage rate paid at the beginning of the uniform production period. In section 2 we shall question the usefulness of the concept of a 'real profit rate' suggested by Bidard and Erreygers and their view that the choice of numeraire can have an impact on the mathematical properties of the system under consideration. In sections 3 and 4 we assess some of the propositions put forward by Bidard and Erreygers. Section 3 deals with the fact that any economic model is bound to distort reality in some way and therefore can never be more than an attempt to 'approximate' important features of the latter. This is exemplified by means of the labour theory of value in classical economics, on the one hand, and by Ricardo's assimilation of the case of Exhaustible Resources to that of scarce land and thus its subsumption under the theory of differential rent, on the other. In certain well-specified circumstances royalties are replaced by rents, while in other circumstances neither rents nor royalties play any role. In section 4 we turn to the so-called Hotelling rule. It is stressed that in order for this rule to apply there must be no obstacles whatsoever to the
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Economic dynamics in a simple model with Exhaustible Resources and a given real wage rate
Structural Change and Economic Dynamics, 2000Co-Authors: Heinz D. Kurz, Neri SalvadoriAbstract:The paper elaborates a dynamic input‐output model with Exhaustible Resources. Discoveries of new deposits and technical progress are set aside. It is assumed that there is a ‘backstop technology’ (based on solar energy), which implies that Exhaustible Resources are not indispensable in production. Given the real wage rate and the consumption pattern of profit and royalty recipients, it is then shown that the paths followed by the royalties paid to the owners of Resources, the quantities produced of the different commodities, and their prices are determined once a sequence of nominal profit rates is given. © 2000 Elsevier Science B.V. All rights reserved.
Robert H. Patrick - One of the best experts on this subject based on the ideXlab platform.
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Irreconcilable Differences in Tests of Hotelling's Theory of Exhaustible Resources
SSRN Electronic Journal, 2007Co-Authors: Janie M. Chermak, Robert H. PatrickAbstract:Empirical tests of the theory of Exhaustible Resources have provided mixed results regarding empirical validity of the theory. This paper considers differences in the primary testing methodologies and alternative measures of the in situ resource price. We demonstrate that in situ price measures common in the literature are theoretically equivalent for the vertically integrated firm. We also show that empirical shadow price test methodologies imply the same restricted econometric model, while the unrestricted models diverge. We find that the Halvorsen and Smith (1991) test methodology is relatively efficient, and, using data on natural gas wells, reject the unrestricted transition equation of traditional methodology. We conclude that discrepant empirical test results may be an artifact of the econometric testing methodologies rather than a reflection on the validity of the theory.
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The Theory of Exhaustible Resources: What are the Econometric Methods Testing?
SSRN Electronic Journal, 2005Co-Authors: Janie M. Chermak, Robert H. PatrickAbstract: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 resource price, and evaluates the potential impacts of processing of the resource on the test results, as well as those of incomplete data and/or information. We evaluate the consistency of the two commonly used test methodologies and the impacts on results of alternative measures of the unobservable in situ resource price. We show how, all else equal, the tests methodologies diverge; as a result, the possibility of discrepant results should not be a surprise. In regards to the impacts of processing, data and information, we find the potential for inaccuracy in the estimate of the in situ resource price, which may result in biased test results.
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A Microeconometric Test of the Theory of Exhaustible Resources
Journal of Environmental Economics and Management, 2001Co-Authors: Janie M. Chermak, Robert H. PatrickAbstract:Abstract This paper generalizes extant developments of the economic theory of Exhaustible resource production, derives and extends a Halvorsen and Smith (1991, Quarterly Journal of Economics,106, 123–140) type test of the theory, and applies the test to a sample of natural gas Resources. To facilitate our empirical test, we extend the model developed in Chermak and Patrick (1995, Journal of Environmental Economics and Management, 28, 174–189) to explicitly account for the fact that the extracted resource (gross product) must be processed to obtain the final (saleable) product. Duality theory is used to derive econometric models with which the theory is statistically tested, using panel data from 29 natural gas wells. Shadow prices of the resource stock through time, which are generally unobservable but necessary for the test, are estimated via the indirect cost function. Contrary to the extant literature, we find, inter alia, that (i) at any point in time, ceteris paribus, the in situ resource price (a) decreases with gross production and (b) increases with final production, and (ii) we cannot reject the theory of Exhaustible Resources, i.e., producer behavior is consistent with the theory.
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reconciling tests of the theory of Exhaustible Resources
2000Co-Authors: Janie M. Chermak, Robert H. PatrickAbstract:Does the economic theory of Exhaustible Resources adequately explain producer behavior? Extant empirical tests show mixed support and are not encouraging in terms of usefulness of the theory in describing producer behavior. There are many differences in extant tests, including differences in resource(s) and market structure analyzed; aggregation over time and Resources; whether and, if so, how the in situ resource price, which is not directly observable, is estimated; and the type of test employed. A natural question arises as to whether rejection of the theory is an artifact of these differences. This paper first develops a general theoretic model of an integrated firm that encompasses the existing tests in the literature as special cases. From this model, we use duality theory to derive the theoretical relationship between gross and final (refined) resource indirect cost functions and to develop alternative measures of the in situ resource price. This leads to four distinct tests of the theory, two of which are new to the literature. Using a single micro-level panel of data, we test the theory under each test category. We find the methodologies that directly test the resource stock transition equation do not result in support for the theory. However, the tests that employ the unrestricted and restricted indirect cost functions do not reject the theory. Since a single data set is used in the tests, the variation in results cannot be based on different resource, aggregation level, or market structure assumptions, explanations that have been suggested in the literature as potential reasons for negative results. We find that the alternative tests lead to opposite conclusions regarding the rejecting the theory or not. This suggests that the mixed results are potentially attributable to either a difference in power of the test statistic employed and/or the statistical differences between the formulations of the test (i.e., using a test based on the variation around the transition equation versus testing the variation around the indirect cost function). We conclude that the theory is indeed useful in explaining producer behavior for the natural gas Resources we analyze.
John E. Tilton - One of the best experts on this subject based on the ideXlab platform.
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Exhaustible Resources and sustainable development
Resources Policy, 1996Co-Authors: John E. TiltonAbstract:Abstract Though sustainable development is a relatively recent addition to the public lexicon, concern that resource depletion may threaten the welfare of future generations dates back at least to Thomas Malthus and other classical economists writing nearly two centuries ago. Today the debate over this threat not only continues, but seems more polarized than ever. In one school are the concerned, often ecologists and other scientists and engineers, who contend the earth cannot for long continue to support current and anticipated levels of demand for oil and other Exhaustible Resources. In the opposing school are the unconcerned, often economists, who claim with equal conviction that the earth with the help of market incentives, appropriate public policies, and new technology can amply provide for society's needs for the indefinite future. That intelligent and informed individuals remain so divided on such an important issue for the future of humanity after years of debate is surprising. The explanation, at least in part, appears to lie with the very different paradigms adopted by the two different groups coupled with quite contrasting views on the beneficence of technology, public policy and the marketplace. The two competing paradigms lead to quite different outlooks on the human condition and in turn on recommendations for public policy.
Janie M. Chermak - One of the best experts on this subject based on the ideXlab platform.
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Irreconcilable Differences in Tests of Hotelling's Theory of Exhaustible Resources
SSRN Electronic Journal, 2007Co-Authors: Janie M. Chermak, Robert H. PatrickAbstract:Empirical tests of the theory of Exhaustible Resources have provided mixed results regarding empirical validity of the theory. This paper considers differences in the primary testing methodologies and alternative measures of the in situ resource price. We demonstrate that in situ price measures common in the literature are theoretically equivalent for the vertically integrated firm. We also show that empirical shadow price test methodologies imply the same restricted econometric model, while the unrestricted models diverge. We find that the Halvorsen and Smith (1991) test methodology is relatively efficient, and, using data on natural gas wells, reject the unrestricted transition equation of traditional methodology. We conclude that discrepant empirical test results may be an artifact of the econometric testing methodologies rather than a reflection on the validity of the theory.
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The Theory of Exhaustible Resources: What are the Econometric Methods Testing?
SSRN Electronic Journal, 2005Co-Authors: Janie M. Chermak, Robert H. PatrickAbstract: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 resource price, and evaluates the potential impacts of processing of the resource on the test results, as well as those of incomplete data and/or information. We evaluate the consistency of the two commonly used test methodologies and the impacts on results of alternative measures of the unobservable in situ resource price. We show how, all else equal, the tests methodologies diverge; as a result, the possibility of discrepant results should not be a surprise. In regards to the impacts of processing, data and information, we find the potential for inaccuracy in the estimate of the in situ resource price, which may result in biased test results.
-
A Microeconometric Test of the Theory of Exhaustible Resources
Journal of Environmental Economics and Management, 2001Co-Authors: Janie M. Chermak, Robert H. PatrickAbstract:Abstract This paper generalizes extant developments of the economic theory of Exhaustible resource production, derives and extends a Halvorsen and Smith (1991, Quarterly Journal of Economics,106, 123–140) type test of the theory, and applies the test to a sample of natural gas Resources. To facilitate our empirical test, we extend the model developed in Chermak and Patrick (1995, Journal of Environmental Economics and Management, 28, 174–189) to explicitly account for the fact that the extracted resource (gross product) must be processed to obtain the final (saleable) product. Duality theory is used to derive econometric models with which the theory is statistically tested, using panel data from 29 natural gas wells. Shadow prices of the resource stock through time, which are generally unobservable but necessary for the test, are estimated via the indirect cost function. Contrary to the extant literature, we find, inter alia, that (i) at any point in time, ceteris paribus, the in situ resource price (a) decreases with gross production and (b) increases with final production, and (ii) we cannot reject the theory of Exhaustible Resources, i.e., producer behavior is consistent with the theory.
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reconciling tests of the theory of Exhaustible Resources
2000Co-Authors: Janie M. Chermak, Robert H. PatrickAbstract:Does the economic theory of Exhaustible Resources adequately explain producer behavior? Extant empirical tests show mixed support and are not encouraging in terms of usefulness of the theory in describing producer behavior. There are many differences in extant tests, including differences in resource(s) and market structure analyzed; aggregation over time and Resources; whether and, if so, how the in situ resource price, which is not directly observable, is estimated; and the type of test employed. A natural question arises as to whether rejection of the theory is an artifact of these differences. This paper first develops a general theoretic model of an integrated firm that encompasses the existing tests in the literature as special cases. From this model, we use duality theory to derive the theoretical relationship between gross and final (refined) resource indirect cost functions and to develop alternative measures of the in situ resource price. This leads to four distinct tests of the theory, two of which are new to the literature. Using a single micro-level panel of data, we test the theory under each test category. We find the methodologies that directly test the resource stock transition equation do not result in support for the theory. However, the tests that employ the unrestricted and restricted indirect cost functions do not reject the theory. Since a single data set is used in the tests, the variation in results cannot be based on different resource, aggregation level, or market structure assumptions, explanations that have been suggested in the literature as potential reasons for negative results. We find that the alternative tests lead to opposite conclusions regarding the rejecting the theory or not. This suggests that the mixed results are potentially attributable to either a difference in power of the test statistic employed and/or the statistical differences between the formulations of the test (i.e., using a test based on the variation around the transition equation versus testing the variation around the indirect cost function). We conclude that the theory is indeed useful in explaining producer behavior for the natural gas Resources we analyze.