Modeling Depletion in a Mineral Industry: The Case of Coal
Volume: Volume 8, No. 1
Issue: Spring 1977
Pages: pp. 41-65
Authors: Martin B. Zimmerman
Title: Modeling Depletion in a Mineral Industry: The Case of Coal
Abstract: This paper has a two-fold purpose. The wider and more abstract purpose is estimating the long-run marginal cost of producing a depletable resource. The second purpose is the illumination of several important policy issues dealing with the development of coal resources. The essence of depletion is the movement from cheaper to more costly deposits. Econometric models estimated from past observations on prices and outputs cannot capture this movement, since the past reflects only the more favorable deposits.
This paper develops on analysis for coal based on the geology of remaining deposits. A "cumulative" cost function is estimated. This function describes how the incremental cost of coal behaves as output cumulates over time. In the first part of the paper a long-run cost function is estimated. Costs are related to output and to the geological characteristics of the coal seam. The second part of the paper combines this cost function with data on the geology of deposits to yield the cumulative cost function. The last section of the paper discusses the implications of the estimation for policy choices relating to strip-mining regulation, air pollution legislation, and energy independence.
JEL Classification
Industry Studies Extractive Industries Mining metal, coal, and other nonmetallic minerals
(6322)
Energy (7230)