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Article
On Equilibrium in Resource Markets with Scale Economies and Stochastic Prices
Journal of Environmental Economics and Management (2012)
  • Charles F Mason, University of Wyoming
Abstract
In this paper, I show the existence and the characteristics of equilibrium in a non-renewable resource market where extraction costs are non-convex and market price is subject to stochastic shocks, an empirically relevant setting. In my model firms may be motivated to hold inventories to facilitate production smoothing, which allows them to continue producing at a smooth pace at any instant when extraction ceases, e.g. when reserves are exhausted. This aspect of the model then supports a competitive equilibrium in the presence of non-convex costs. Casual empirical evidence is provided that supports the central features of my model for a variety of non-renewable resources, lending credence to the explanation for equilibrium I propose.
Keywords
  • Resource Economics,
  • Inventories,
  • Stochastic Dynamic Optimization
Publication Date
November, 2012
Citation Information
Charles F Mason. "On Equilibrium in Resource Markets with Scale Economies and Stochastic Prices" Journal of Environmental Economics and Management Vol. 64 (2012) p. 288 - 300
Available at: http://works.bepress.com/charles_mason/11/