Rents in the era of resource scarcity: global payment flows under alternative scenarios

Faye Duchin,Stephen H Levine

doi:10.1186/s40008-015-0016-5

Faye Duchin, Stephen H Levine

Open Access

https://doi.org/10.1186/s40008-015-0016-5

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Abstract

Resource prices rise when more costly sources need to be exploited. When the world price increases, owners of low-cost sources receive scarcity rents. The magnitude of the rents depends on the range of resource qualities being simultaneously exploited and can represent a substantial transfer of wealth to those with property rights to large stocks of high-quality, easily accessible resources. These rents are bound to increase in the future along with the size of the human population, raised consumption expectations, and deployment of technologies that depend on a wider range of natural resources for their unique properties. We report results for a set of scenarios for a three-region, four-sector, three-resource world economy, where progressively increased consumer demand requires a second and then a third region to extract ore. This numerical example illustrates how the amount of rents transferred to the low-cost producers depends on the size of the low-cost endowments relative to world demand and on the differential costs of extraction relative to the highest-cost producer. The paper develops a framework for tracing global money flows from payments for specific consumer goods in one or more economies to receipts by owners of the embodied factors of production under alternative scenarios about the future. This objective requires a substantial generalization of methods utilized for ex post analysis of input-output databases for past years. For a world economy of m regions, n sectors, and k factors of production, we first compute scenario results using the World Trade Model with Bilateral Trade, then generate the Multiregional Input-Output database corresponding to each scenario, and finally compute a new Consumer-to-Factor Matrix from which the payment network is derived. JEL Classification: F18, O13, C67, C61

Highlights

1 Background At a time when global demand for oil was low and supply continues to increase, Saudi Arabia announced at the November 2014 meeting of OPEC that it would not cut its production volume
3 Results and discussion we are ready to illustrate what can be learned about the consequences of resource scarcity using the combination of the WTMBT model for scenario analysis, the Multiregional Input-Output (MRIO) data structure, and the Consumer-to-Factor Matrix (CFM) to quantify payment flows corresponding to alternative scenarios
We present an approach for anticipating these challenges through scenario analysis supplemented by the ex post derivation of the payment networks associated with scenario outcomes

Summary

Introduction

At a time when global demand for oil was low and supply continues to increase, Saudi Arabia announced at the November 2014 meeting of OPEC that it would not cut its production volume. This is a momentous decision on the part of the country that has been the world’s largest producer and exporter of petroleum, and as the lowest-cost producer, the major recipient of resource rents, a country that, at other times, has cut back production to bolster prices. The key variables in determining the distribution of future resource rents include the demand for resource-intensive goods and services associated with increases in population and affluence and with changes in consumption preferences. Candidates for supply shortages include phosphate ore for fertilizer and geographically concentrated metals such as strontium (China), the platinum group (South Africa and Russia), niobium (Brazil), tellurium (United States and Australia), and manganese (Ukraine and South Africa) (Graedel et al 2013)

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