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Computational Economics

, Volume 40, Issue 4, pp 387–399 | Cite as

An Economic Model of Oil Exploration and Extraction

  • Alfred GreinerEmail author
  • Willi Semmler
  • Tobias Mette
Article

Abstract

In this paper we present empirical facts on oil exploitation and a model that can replicate some of these facts. In particular, we show that the time path of the oil price, on the one hand, and the extraction rate, on the other hand, seem to follow a U-shaped and an inverted U-shaped relationship, respectively, which is confirmed by simple non-parametric estimations. Next, we present a theoretical model where a monopolistic resource owner maximizes inter-temporal profits from exploiting a non-renewable resource where the price of the resource depends on the extraction rate and on cumulated past extraction. The resource is finite and only a part of the resource is known while the rest has not yet been discovered. The analysis of that model demonstrates that the extraction rate and the price of the resource show the empirically observed pattern if the stock of the initially known resource is small.

Keywords

Non-renewable resources Optimal control Non-parametric estimation Oil production 

JEL Classification

Q30 C61 

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Copyright information

© Springer Science+Business Media, LLC. 2011

Authors and Affiliations

  1. 1.Department of Business Administration and EconomicsBielefeld UniversityBielefeldGermany
  2. 2.Department of EconomicsNew School for Social ResearchNew YorkUSA
  3. 3.Tallin University of TechnologyTallinnEstonia

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