Exploration and extraction in a duopoly-exhaustible resource market

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Abstract

Exploration for an exhaustible natural resource is valuable because it produces information about the resource stock. I model a duopoly-exhaustible resource industry with imperfect information about stock size as a two-period game, where each period is made up of an exploration stage and an extraction stage. I derive the value of gaining information about stock size prior to committing to an extraction plan both for the exploring firm and for the rival. I show that an exploring firm would prefer, on average, to keep exploration information private, but that industry profit is higher when information is made public.

Original languageEnglish (US)
Pages (from-to)473-492
Number of pages20
JournalCanadian Journal of Economics
Volume29
Issue number2
DOIs
StatePublished - May 1996

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