The Economics of Peak Oil

Stephen Holland

No 11-13, UNCG Economics Working Papers from University of North Carolina at Greensboro, Department of Economics

Abstract: “Peak oil” refers to the future decline in world production of crude oil and to the accompanying potentially calamitous effects. The peak oil literature typically rejects economic analysis. This chapter, following Holland (2008), argues that economic analysis is indeed appropriate for analyzing oil scarcity since standard economic models can replicate the observed peaks in oil production. Moreover, the emphasis on peak oil is misplaced since peaking is not a good indicator of scarcity, peak oil techniques are overly simplistic, the catastrophes predicted by the peak oil literature are unlikely, and the literature does not contribute to correcting identified market failures. Efficiency of oil markets could be improved by instead focusing on remedying market failures such as excessive private discount rates, environmental externalities, market power, insufficient innovation incentives, incomplete futures markets, and insecure property rights.

Keywords: Depletable resources; Hotelling; peak oil (search for similar items in EconPapers)
JEL-codes: Q30 Q40 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2011-08-02
New Economics Papers: this item is included in nep-cwa, nep-ene and nep-env
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