Exploration and Extraction in a Duopoly-Exhaustible Resource Market

Stephen Polasky

Canadian Journal of Economics, 1996, vol. 29, issue 2, 473-92

Abstract: Exploration for an exhaustible natural resource is valuable because it produces information about the resource stock. The author models a duopoly-exhaustible resource industry with imperfect information about stock size as a two-period game, where each period is made up of an exploration stage and an extraction stage. He derives the value of gaining information about stock size prior to committing to an extraction plan both for the exploring firm and for the rival. The author shows that an exploring firm would prefer, on average, to keep exploration information private but that industry profit is higher when information is made public.

Date: 1996
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