Resource extraction with differential information
The paper examines the question of whether land rents should be considered costs. The motivation for this paper arose from a study of a search model of resource exploration. The study showed that when no new information is revealed in the process of search, exploration can be completely characterized by a reservation cost rule. If probability distributions are known and firms are risk-neutral, the sequence of extraction would be efficient. The area with the lowest reservation cost would be and should be exploited first. It is implied that, for the purpose of resource allocations, unexplored land can be considered a commodity with essentially the same characteristics as known deposits. The author then examines a specific example which shows that, when the characteristics of nonreplenishable resources can be screened, it may not be desirable to screen all resources at the same intensity. He also examines the allocation of screening effort in a decentralized economy with complete futures markets. A final note concerns the general intuitive explanation of the differentiated screening equilibrium. (MCW)
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