Extracting Resource Deposits of Unknown Size: Optimal Order

Murray Kemp and Ngo Long

German Economic Review, 2009, vol. 10, issue 4, 401-421

Abstract: Abstract. The optimal order of extracting resource deposits of unknown size depends on the informational characteristics of the extraction process. This paper fills the gap between two strands of literature. The first strand is about the optimal extraction of single reserve under stock‐size uncertainty. The second strand is about the optimal order of extraction of deposits of known sizes. Our emphasis on the premium for resolution of uncertainty complements Solow and Wan's shadow surcharge when extraction moves from a low‐cost deposit to a high‐cost one.

Date: 2009
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https://doi.org/10.1111/j.1468-0475.2009.00488.x

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German Economic Review is currently edited by Bernhard Felderer, Joseph F. Francois, Ivo Welch, Urs Schweizer and David E. Wildasin

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