『Abstract
Natural resource prices and costs of extraction have declined
simultaneously with increasing quantities of extraction for a
long time. In a Hotelling sense this indicates decreasing scarcity
since low cost resources normally would be used first and quantities
of extraction normally would decrease over time. The main reason
for the trend being opposite to Hotelling characteristics is usually
thought to be due to technological innovation. However, an alternative
reason for decreasing costs and prices and increasing quantities
of extraction may be due to Georgescu-Roegen's [Georgescu-Roegen,
Nicholas, 1972. Energy and economic myth. In: Georgescu-Roegen,
Nicholas (Ed.), Energy and Economic Myths: Institutional and analytical
Economic Essays. Published 1976, Pergamon Press, New York, pp.
3-36] concept of ‘Bonanza’ where there is only the appearance
of decreasing scarcity. Norgaad's [Norgaard, R.B., 1990. Economic
indicators of resource scarcity: a critical essay. J. Environ.
Econ. Manage. 19(1), 19-25] ‘Mayflower’ problem can be used to
model an alternative neo-classical approach to resource extraction
and scarcity. In this paper, a model of resource exploration is
developed where the explorer does not know total reserves of the
resource base as he searches for and extracts the natural resource.
The explorer never entirely knows how big the resource base is
but does gain information about the potential location of new
reserves as discovery proceeds. That reduces exploration costs.
The lower exploration costs can cause the price to fall over time,
until eventually scarcity of the resource causes the price to
rise. The true scarcity is only revealed towards the end of exhaustion.
The model shows that it is possible to have several years of increasing
production simultaneous with lower prices and costs until a sudden,
intense price rise occurs with a huge cut in production. When
technology is able to cut costs and increase the reserve base,
the decline in prices and costs and the increase in production
can last longer. However, even with better technology, it is still
possible for a sharp increase in price as long as demand is growing
faster than technological innovation. The problem is that the
true size of the resource base is never known. Society does not
know if technology is actually overcoming scarcity or not until
demand for a resource outstrips supplies. It is even possible
for a price shock of incredible magnitude to surprise an economy
within one or two years after a hundred years of declining prices
and increasing production.
Keywords: Resources; Scarcity; Technology; Exploration; Information;
Hubbert; Norgaard's Mayflower problem』
1. Introduction
2. Monte Carlo modeling
3. The mineral economy model
4. An exploration information cost model
4.1. Short-run characteristics of probability
4.2. Long-run characteristics of probability
5. A mineral market simulation
6. Conclusion
Acknowledgements
References