The benefits of storage and non-renewable resource price dynamics

Jason Stevens

Canadian Journal of Economics, 2013, vol. 46, issue 1, 239-265

Abstract: Both the Theory of Storage and the Hotelling model play a prominent role in the study of non-renewable resource prices. This paper combines these approaches by modifying the Hotelling model to allow firms to hold inventory in addition to in-ground reserves, contributing three new results. First, inventory is more likely to be held if future demand and/or the marginal cost of extraction are uncertain. Second, the market price of the commodity is based on the Theory of Storage when inventory is held. Third, the optimal extraction of the resource is based on the Hotelling model.

JEL-codes: Q3 (search for similar items in EconPapers)
Date: 2013
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