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Extraction of an Exhaustible Resource: The Effects on Investment of Several Parameters Being Subject to Uncertainty

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  • R. W. FRASER
  • R. J. VAN NOORDEN

Abstract

This article shows that the effect on investment of the introduction of uncertainty about the size of one parameter depends on what other parameters are simultaneously uncertain. Further, two parameters may be linked with positive or negative covariances. The covariances are here shown to have important effects on the investor, whether risk neutral or risk averse. Governments are advked to consider policies that affect the covariances of those parameters that are key influences on in vestment.

Suggested Citation

  • R. W. Fraser & R. J. Van Noorden, 1983. "Extraction of an Exhaustible Resource: The Effects on Investment of Several Parameters Being Subject to Uncertainty," The Economic Record, The Economic Society of Australia, vol. 59(4), pages 365-374, December.
    • Handle: RePEc:bla:ecorec:v:59:y:1983:i:4:p:365-374
    DOI: 10.1111/j.1475-4932.1983.tb00826.x
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    References listed on IDEAS

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    1. Leland, Hayne E, 1972. "Theory of the Firm Facing Uncertain Demand," American Economic Review, American Economic Association, vol. 62(3), pages 278-291, June.
    2. Fraser, Robert W, 1986. "On the Relationship between Exploration and Extraction," Australian Economic Papers, Wiley Blackwell, vol. 25(46), pages 135-143, June.
    3. Richard J. Gilbert, 1979. "Optimal Depletion of an Uncertain Stock," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 46(1), pages 47-57.
    4. Baron, David P, 1971. "Demand Uncertainty in Imperfect Competition," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 12(2), pages 196-208, June.
    5. Ishii, Yasunori, 1977. "On the Theory of the Competitive Firm under Price Uncertainty: Note," American Economic Review, American Economic Association, vol. 67(4), pages 768-769, September.
    6. Robson, Arthur J., 1979. "Sequential exploitation of uncertain deposits of a depletable natural resource," Journal of Economic Theory, Elsevier, vol. 21(1), pages 88-110, August.
    7. Glenn C. Loury, 1978. "The Optimal Exploitation of an Unknown Reserve," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 45(3), pages 621-636.
    8. Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 61(1), pages 65-73, March.
    9. Murray C. Kemp & Ngo Van Long, 1978. "The Optimal Consumption of Depletable Natural Resources: Comment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 92(2), pages 345-353.
    10. Michael Hoel, 1978. "Resource Extraction, Uncertainty, and Learning," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 642-645, Autumn.
    11. Harry F. Campbell, 1980. "The Effect of Capital Intensity on the Optimal Rate of Extraction of a Mineral Deposit," Canadian Journal of Economics, Canadian Economics Association, vol. 13(2), pages 349-356, May.
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    Cited by:

    1. Rob Fraser, 1995. "An Analysis Of The Role Of Uncertainty In The Marketing Of Perishable Products," Journal of Agricultural Economics, Wiley Blackwell, vol. 46(2), pages 233-240, May.
    2. Rob Fraser, 1993. "On the Neutrality of the Resource Rent Tax," The Economic Record, The Economic Society of Australia, vol. 69(1), pages 56-60, March.
    3. R.W. Fraser, 1983. "Specific Versus ad Valorem-Based Royalties," Economics Discussion / Working Papers 83-02, The University of Western Australia, Department of Economics.
    4. R. W. Fraser, 1986. "Uncertainty and Production Quotas," The Economic Record, The Economic Society of Australia, vol. 62(3), pages 338-342, September.

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