The Optimal Production of an Exhaustible Resource

  title={The Optimal Production of an Exhaustible Resource},
  author={Robert S. Pindyck}
This paper examines the optimal production of a resource such as oil when its price is determined exogenously (e.g. by a cartel such as OPEC), and is subject to stochastic fluctuations away frdm an expected growth path. We first examine the dependence of production on extraction cost, and show that the conventional exponential decline curve is indeed optimal if marginal cost is constant with respect to the rate of extraction but is a hyperbolic function of the reserve level. We next show that… CONTINUE READING
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3 Excerpts

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2 Excerpts

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