Behavior of multi-product mining firms

Brett W. Jordan ()
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Brett W. Jordan: Division of Economics and Business, Colorado School of Mines
Authors registered in the RePEc Author Service: Brett J Watson

No 2016-08, Working Papers from Colorado School of Mines, Division of Economics and Business

Abstract: Jointly produced renewable resources, such as fish, have been extensively studied in the literature on multi-product firms. However, relatively little empirical work has been done on jointly produced non-renewable resources such as metals. This difference is key because theoretical Hotelling-style models have shown that non-renewable resource producers faced with fixed capacity constraints and heterogeneous resources may reduce output in response to higher price, in contrast to the behavior of nearly all other types of firms. The joint product relationship is tested econometrically for five metals using a panel representing more than 100 mines across the time period 1991-2005. The estimation strategy is drawn from joint production theory, namely a flexible form, dual revenue approach with seemingly unrelated regression (SUR) estimation. The results confirm that multi-product mines respond (in the short run) to higher prices of a particular metal by reducing output of that metal. The results also show certain metals are complements and certain metals are substitutes in supply, which is arguably a more complete framework than conventional wisdom on joint metal production. The results have important implications for future modeling efforts related to metal markets.

Keywords: multi-product; joint production; mining; metal supply (search for similar items in EconPapers)
Pages: 25 pages
Date: 2016-09
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http://econbus-papers.mines.edu/working-papers/wp201608.pdf First version, 2016 (application/pdf)

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