Hotelling under Pressure
By Sören Anderson, Ryan P. Kellogg, Stephen W. Salant. Journal of Political Economy, 2018
245 citations recorded by the source corpus.
We show that oil production from existing wells in Texas does not respond to oil prices, while drilling activity and costs respond strongly. To explain these facts, we reformulate Hotelling’s classic model of exhaustible resource extraction as a drilling problem: firms choose when to drill, but production from existing wells is constrained by reservoir pressure, which decays as oil is extracted. The model implies a modified Hotelling rule for drilling revenues net of costs, explains why the production constraint typically binds, and rationalizes regional production peaks and observed patterns of prices, drilling, and production following demand and supply shocks.
Subfields: Economics and Econometrics, Renewable Energy, Sustainability and the Environment
View Paper: https://www.semanticscholar.org/paper/65f1c7efbe3ef2f5e6c5f8b1f047ec6eecccb55e
How researchers see this paper
The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.
In Economics and Econometrics
- Christiane Baumeister
- Lutz Kilian
- Per Krusell
- John Hassler
- Conny Olovsson
- George Filis
- Stavros Degiannakis *
- Robert J. Vigfusson
In Renewable Energy, Sustainability and the Environment
- Christiane Baumeister
- Lutz Kilian
- John Hassler
- Per Krusell
- Conny Olovsson
- George Filis
- Stavros Degiannakis *
- Robert J. Vigfusson
Citations in the corpus
- Oil Prices, Exchange Rates and Interest Rates (2019, unknown): “Second, although there are no microeconomic estimates of the global one-month price elasticity of oil supply, recent microeconomic estimates based on regional data from the United States are all close to zero and not significantly larger than zero, consistent with economic theory (Anderson et al. 20”
- Understanding the Decline in the Price of Oil since June 2014 (2016, background): “Oil producers not only behaved much like in the past, but their behavior seems fully consistent with economic theory (see Anderson et al. 2014).”
- Directed Technical Change as a Response to Natural Resource Scarcity (2021, background): “An interesting recent paper (Anderson et al., 2014) formulates oil production as a process with rather fixed extraction rates; in their framework, thus, production does not respond to prices.”