 Prices of durable nonrenewable natural resources under stochastic investment opportunitiesCalvin Atewamba and Gérard Gaudet Resource and Energy Economics, 2014, vol. 36, issue 2, 528-541 Abstract: We take a capital asset pricing approach to the determination of the price of a nonrenewable natural resource in the case where the resource is durable, in the sense that once extracted it becomes a productive asset held above ground. The portfolio choice is then made up of the following assets: a stock of nonrenewable resource held in the ground that yields no dividend, a stock of resources held above ground that yields a dividend in the form of a flow of productive services, and a stock of composite good that can be held either in the form of productive capital or of a bond whose return is given. There is a stochastic element to the rate of change of productivity in both the production of the composite good and in the extraction of the resource. It is shown that the resulting prediction for the price path of the resource differs considerably from the one that follows from the elementary Hotelling model and that no unambiguous prediction can be drawn analytically about the pattern of behavior of that price path. Keywords: Exhaustible resource prices; Durable resources; Stochastic productivity indices; Capital asset pricing (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:resene:v:36:y:2014:i:2:p:528-541 DOI: 10.1016/j.reseneeco.2013.07.003 Access Statistics for this article Resource and Energy Economics is currently edited by J. F. Shogren and S. Smulders More articles in Resource and Energy Economics from Elsevier |
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