On the Depletion of Exhaustible Resources in the Presence of Revised Estimates

Abstract

The aim of this paper is to describe intertemporal optimal policies for a (competitive and monopolist) producer of an exhaustible resource. An important source of uncertainty is considered—that which relates to the actual size of the in-ground resource, because of revisions in estimates. Market uncertainty is also taken into account. Conditions for the expected evolution of the royalty price are given, generalizing results in the literature. Closed form solutions are also given for a particular case, showing clearly the impact of uncertainty on the optimal strategies.