publication . Article . 1980

Uncertainty and exhaustible-resource markets

Robert S. Pindyck;
Open Access
  • Published: 01 Jan 1980 Journal: Journal of Political Economy, volume 88, issue 6 Dec., pages 1,203-25
Abstract
Demand and reserve uncertainty are included in a simple model of an exhaustible resource market by allowing the demand function and the reserve level to fluctuate via continuous-time stochastic processes. Thus, producers always know current demand and reserves but do not know what demand and reserves will be in the future. I show that demand uncertainty has no effect on the expected dynamics of market price, while reserve uncertainty shifts the expected rate of change of price only if extraction costs are nonlinear in reserves. However, if the demand function is nonlinear, both demand, and reserve uncertainty affect the dynamics of production, whatever the chara...
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