An Economic Model of Oil Exploration and Extraction

Alfred Greiner, Willi Semmler and Tobias Mette

Computational Economics, 2012, vol. 40, issue 4, 387-399

Abstract: In this paper we present empirical facts on oil exploitation and a model that can replicate some of these facts. In particular, we show that the time path of the oil price, on the one hand, and the extraction rate, on the other hand, seem to follow a U-shaped and an inverted U-shaped relationship, respectively, which is confirmed by simple non-parametric estimations. Next, we present a theoretical model where a monopolistic resource owner maximizes inter-temporal profits from exploiting a non-renewable resource where the price of the resource depends on the extraction rate and on cumulated past extraction. The resource is finite and only a part of the resource is known while the rest has not yet been discovered. The analysis of that model demonstrates that the extraction rate and the price of the resource show the empirically observed pattern if the stock of the initially known resource is small. Copyright Springer Science+Business Media, LLC. 2012

Keywords: Non-renewable resources; Optimal control; Non-parametric estimation; Oil production; Q30; C61 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s10614-011-9272-0

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