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The benefits of storage and non-renewable resource price dynamics

Authors


  • This paper is based on material drawn from chapter 2 of my PhD dissertation, completed at Dalhousie University. I would like to thank Peter Burton, Melvin Cross, and Kuan Xu for their feedback on the (many) earlier drafts. I would also like to thank Gerard Gaudet for his comments. The excellent comments received from two anonymous referees significantly improved the paper. Email: jmstevens@upei.ca

Abstract

Abstract Both the Theory of Storage and the Hotelling model play a prominent role in the study of non-renewable resource prices. This paper combines these approaches by modifying the Hotelling model to allow firms to hold inventory in addition to in-ground reserves, contributing three new results. First, inventory is more likely to be held if future demand and/or the marginal cost of extraction are uncertain. Second, the market price of the commodity is based on the Theory of Storage when inventory is held. Third, the optimal extraction of the resource is based on the Hotelling model.

Abstract

A la fois la théorie de l’entreprosage et le modèle d’Hotelling jouent un rôle important dans l’étude du prix des ressources non-renouvelables. Le présent mémoire combine ces approches en modifiant le modèle d’Hotelling pour permettre aux entreprises de détenir des inventaires en plus de réserves souterraines. Cela produit trois résultats. D’abord, on est davantage susceptible de détenir des inventaires si la demande future et/où le coût marginal de l’extraction sont incertains. Ensuite, le prix du marché de la ressource est fondé sur la théorie de l’entreposage quand inventaire il y a. Enfin, l’extraction optimale de la ressource est basée sur le modèle d’Hotelling.

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