Abstract
This paper examines empirical evidence of the relationship between price changes and ore quality selection and metal production in the context of a depletion model in which ore quality varies within a given deposit and the extractive firm does not plan to return at a later date to the low quality ores it leaves behind. In this context, it can be optimal for the extractive firm to lower the quality of extracted ore and decrease its metal production in response to revised expectations about the future path of the resource price. More standard results apply to the case of anticipated price changes. A probit model using micro data provides strong evidence against the anticipated price model but is consistent with the revised price expectations model. The empirical results emphasize the importance of ore quality as a choice variable in models of extraction.
Published Version
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