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DYNAMIC INVESTMENT IN EXTRACTION CAPACITY OF EXHAUSTIBLE RESOURCES
Author(s) -
Ghoddusi Hamed
Publication year - 2010
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/j.1467-9485.2009.00522.x
Subject(s) - investment (military) , extraction (chemistry) , commodity , economics , resource (disambiguation) , process (computing) , mathematical optimization , econometrics , computer science , mathematics , computer network , chemistry , chromatography , politics , political science , law , market economy , operating system
This paper studies a resource extraction problem with capacity constraints, expansion options and stochastic demand process. The producer has to decide on the optimal rate of extraction and the optimal time to build further capacity simultaneously. Using numerical methods to solve the problem, it is shown that previous results which suggest that extraction capacity should be built at the beginning, are not necessarily true under uncertainty. I derive equations for the optimal time to build extra capacity. The results of this paper can contribute to better understanding of long‐run energy and commodity supply.