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SCARCITY AND RICARDIAN RENTS FOR CRUDE OIL*
Author(s) -
MUELLER MICHAEL J.
Publication year - 1985
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1985.tb01791.x
Subject(s) - economics , economic rent , scarcity , crude oil , profit maximization , profit (economics) , marginal cost , natural resource economics , microeconomics , unit (ring theory) , econometrics , mathematics , petroleum engineering , mathematics education , engineering
This paper estimates scarcity rent/user cost and Ricardian rent for crude oil in Oklahoma. A model of firm behavior is proposed incorporating both development and production decisions considering crude oil as a nonrenewable natural resource. Profit maximization conditions derived from the model are applied to take into account cost differentials associated with oil found at varying depths. It is shown that oil with the highest cost is the marginal unit and it is the marginal output that determines Ricardian rent. Time series data is used to estimate equations derived from the necessary conditions. It is found that scarcity rent is a significant proportion of the price of crude oil and has increased in the past decade.