Risk Aversion and Wealth Effects on Portfolios with Many Assets: An Extension Get access Ngo van Long Ngo van Long Australian National University Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 42, Issue 3, July 1975, Pages 473–477, https://doi.org/10.2307/2296860 Published: 01 July 1975

I. Introduction and summary, 289.—II. The basic model, notation and assumptions, and analysis of the n = 1 case, 296.—III. The no-joint production case with n > 1,301.—IV. The joint production case with n > 1,303.—V. The social rate of return, 306.—VI. Concluding remarks, 312.

Monopoly, 346.—Competition, 347.—Comparison of the monopolistic and competitive paths, 349.—The socially optimal path, 351.—Final remarks, 351.

Consider a closed economy with several deposits of an exhaustible resource, with the marginal cost of extraction differing from deposit to deposit but constant for each deposit. It is widely believed that social optimality requires that deposits be exploited in strict sequence, beginning with the lowest cost deposit. It is shown that, in a general equilibrium context, with Ricardian techniques of extraction, the validity of the proposition depends on what is meant by constancy of cost. It is also believed that if there exists a high-cost substitute for the resource then the resource should be exhausted before production of the substitute is begun. It is shown that this proposition is false.

This paper investigates oil depletion and trade when monopolistic oil producers also exercise monopoly power in the capital market. A two-period model views collusively organized oil producers with an initial trade surplus and a subsequent deficit. When monopoly power in the capital market is applied to the disadvantage of borrowers, less oil is initially made available to oil importers than if the interest rate had been competitively determined. This depletion bias, however, is reversed if, because of incentives for capital accumulation, it is to the advantage of the oil producers to subsidize lending to the oil importers. In either case the bias in oil depletion due to monopolistic recycling of oil revenue is greater, the more vulnerable are oil importers' incomes to a curtailment of oil supplies.

This paper considers pricing and depletion of an exhaustible nonrenewable resource in an economy wherein domestic consumption is provided for by supplementing extraction from the economy's own resource stock with imports, the future supply of which is not assured. The socially optimal response to threat of trade disruption is a more conservationist depletion program for the domestic resource stock than would be called for, if import supplies were assured to persist. Competitive domestic firms adopt the socially optimal conservationist program. However, firms anticipating domestic market power after the disruption of import supplies are revealed to overextract the domestic resource stock.