Monday, July 21, 2014

Optimal extraction when existing wells are limited in capacity.

Econbrowser: "Production flows from a given oil field naturally decline over time, but we keep trying harder and technology keeps improving. Which force is winning the race?" Hamilton reviews a recent paper by Anderson, Kellogg, and Salant (2014) who notice that production from existing wells do not respond to price movements, but the drilling of new wells does. They reformulate a Hotelling model taking that can explain this phenomenon based on capacity constraints of existing wells.

No comments:

Post a Comment

Reactions welcome! Please use your full name.