A Well-Based Cost Function and the Economics of Exhaustible Resources: The Case of Natural Gas
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Authors
Chermak, Janie M.
Patrick, Robert H.
Subjects
Advisors
Date of Issue
1995
Date
Publisher
Academic Press, Inc.
Language
Abstract
A cost function for natural gas production is estimated, using a pool of data from 29 wells. Statistically exact tests are performed for parameter stability across locations, formations, wells, and producing firms. Costs are determined to be inversely related to remaining recoverable reserves, and marginal costs of production are decreasing in all cases. Theoretical implications of these cost characteristics on optimal exhaustible resource extraction are analyzed. Although marginal cost is decreasing, production effects on the resource stock imply that an interior production path may be optimal. Conditions under which production optimally occurs at the capacity bound are delineated, and optimal interior production paths are characterized.
Type
Article
Description
Series/Report No
Department
Organization
Naval Postgraduate School (U.S.)
Identifiers
NPS Report Number
Sponsors
Gas Research Institute
Funder
Format
16 p.
Citation
Chermak, Janie M., and Robert H. Patrick. "A well-based cost function and the economics of exhaustible resources: The case of natural gas." Journal of Environmental Economics and Management 28.2 (1995): 174-189.
Distribution Statement
Rights
This publication is a work of the U.S. Government as defined in Title 17, United States Code, Section 101. Copyright protection is not available for this work in the United States.