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Futures markets, price stabilization and efficient exploitation of exhaustible resources

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  • Erwin Bulte
  • Joost Pennings
  • Wim Heijman

Abstract

Markets for natural resource futures contracts and cash forward contracts experience a rapid growth. According to theory, this should result in more efficient resource depletion, implying that price formation is more consistent with Hotelling's rule. The rationale of this stabilization effect is briefly discussed. Next, we analyze the impact of expanding futures markets on the behaviour of individual resource owners trading on the cash market. Using a simple pulse extraction model, we demonstrate that the expected time of depletion can shift to the present or the future, and that utility of exploitation can go up or down, as market prices are stabilized. Copyright Kluwer Academic Publishers 1996

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  • Erwin Bulte & Joost Pennings & Wim Heijman, 1996. "Futures markets, price stabilization and efficient exploitation of exhaustible resources," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 8(3), pages 351-366, October.
    • Handle: RePEc:kap:enreec:v:8:y:1996:i:3:p:351-366
    DOI: 10.1007/BF00339082
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    5. Chen, Yanhui & He, Kaijian & Zhang, Chuan, 2016. "A novel grey wave forecasting method for predicting metal prices," Resources Policy, Elsevier, vol. 49(C), pages 323-331.

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