The time path of the marginal cost of oil: The turning point and the subsequent upward drift |
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| Authors: | S Thore S L McDonald R Gonzalez N P Ritchey T W Ruefli K K Sinha |
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| Institution: | (1) IC2 Institute, University of Texas at Austin, 78705-3596 Austin, TX, USA;(2) Department of Economics, University of Texas at Austin, 78705-3596 Austin, TX, USA;(3) Department of Mathematics, Youngstown state University, 44503 Youngstown, OH, USA;(4) Department of Management IC2 Institute, University of Texas at Austin, 78705-3596 Austin, TX, USA;(5) Department of Operations and Management Science, University of Minnesota, 55455 Minneapolis, MN, USA |
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| Abstract: | The gradual exhaustion of existing deposits of a depletable non-renewable resource such as oil tends to shift the supply price curve of the resource upwards, increasing its marginal cost. Advances in technologies for exploration and production act as a brake on such upward shifts. Thus, there is a tug-of-war between the gradual exhaustion of existing deposits and technological progress. Using a recently developed constrained least-squares regression technique, we demonstrate that technological progress was the dominant force of the two during the first part of this century, causing a secular drop in marginal costs, but that this situation eventually was reversed, and that the gradual exhaustion of deposits gained the upper hand, causing marginal costs to increase. The turning point occurred around 1971–72. We also discuss the forecasting of the possible current upward drift of marginal costs. |
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| Keywords: | Depletable non-renewable resources marginal cost technological progress depletion of reserves constrained least squares regression |
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