Estimates of Marginal Discovery Costs for Oil and Gas

John Livernois

Canadian Journal of Economics, 1988, vol. 21, issue 2, 379-93

Abstract: Previous estimates of the finding costs for oil and natural gas reserves have been impeded by the joint-cost problem in exp loration. The solutions have been to either estimate the finding cost for an oil-gas aggregate or to allocate total finding costs between oil discoveries and gas discoveries according to rules chosen by the researcher. In this paper, the joint-cost problem is circumvented by estimating a multiple-output, exploration cost function which is used to calculate the predicted values of marginal finding costs for oil and gas. These values are then compared to independent estimates of t he shadow prices of reserves for oil and gas to help settle the debat e over whether marginal finding costs provide a good measure of rent.

Date: 1988
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