A martingale characterization of the price of a nonrenewable resource with decisions involving uncertainty

Sudhakar D. Deshmukh*, Stanley R. Pliska

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

22 Scopus citations

Abstract

This paper presents a general model of nonrenewable resource consumption and exploration decisions involving uncertainty about the time of occurrence of an event such as exhaustion, stock discovery, or a substitute development. The resulting price process is characterized in terms of necessary and sufficient conditions under which the price is expected to rise at a rate equal to, greater than, or less than the discount rate. The general model is illustrated and the price process and the optimal decisions are characterized by examining the three types of uncertainty indicated above.

Original languageEnglish (US)
Pages (from-to)322-342
Number of pages21
JournalJournal of Economic Theory
Volume35
Issue number2
DOIs
StatePublished - Aug 1985

ASJC Scopus subject areas

  • Economics and Econometrics

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