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42 comments on The Extraction of Exhaustible Resources

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Halfin on January 4, 2006 - 3:46am Permalink | Subthread | Comments top
I see several problems with this analysis but I will just mention a couple. A minor point is that the equation you wrote as S(t) = -q(t) is actually supposed to be S-dot, not S. If you look at http://www.theoildrum.com/uploads/44/hotelling_1.gif you see there is a dot above the S. This is dS/dt, the rate of change of S. It makes sense that S, the remaining supply, is decreasing at the rate of q, which is the flow rate.

Another problem is that you quote Lynch supposedly criticizing the Hotelling model when in fact he is criticizing Hubbard peak theory. These are not the same! In fact I read a paper recently comparing both the classical economic model of Hotelling and the peak oil model of Hubbard against American historical experience. Neither one worked well, but they are certainly not the same. Here's the paper: http://www.bu.edu/cees/research/workingp/pdfs/9902.pdf

A few other points: as others have pointed out, your reformulation is meaningless, changing q to f. q is simply the rate at which oil is being extracted. There are no assumptions about its functional form or what it depends on in the bare Hotelling model.

Also you quote Stuart's estimate of 2.35 trillion barrels but that comes from Hubbard linearization which should mean that it is recoverable reserves. But in that same paragraph you suggest that world recoverable reserves are only 1 trillion barrels and quote other figures that are also inconsistent.

This is a very complicated area and the bottom line is that there are no good models for predicting the future course of oil production. There is too much uncertainty politically, technologically and economically to come up with a credible opinion. That doesn't stop people from trying, of course, but I can't help noticing that everyone gets a different answer.

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Halfin on January 4, 2006 - 3:58am Permalink | Subthread | Parent | Comments top
Of course I meant Hubbert not Hubbard. No idea where that came from.

Oops, sorry, I've got to go check the cupboard, my dog's hungry...

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Dave Cohen on January 4, 2006 - 1:15pm Permalink | Subthread | Parent | Comments top
As regards "S dot", that's how I understood it but left the "dot" out of my reformulation.

With respect to Lynch criticizing Hubbert Linearizations --since Lynch does not effectively believe that fossil fuels are finite in extent, then he does not believe that any economics of finite resources (like that of Hotelling) applies to the problem.

Regarding the 2.35 trillion barrels and what is recoverable, that was my mistake. I don't know what I was thinking there. The main point, that there is a finite URR, remains untouched.

My reformulation was supposed to be a "straw man". If URR is finite but very large and its exhaustion is beyond the time window that our economic behaviour allows--which for the futures markets appears to be at best a few years--then my thinking was that available flows are finite ie. have an upper bound. Since that is the case, as Peak Oil theory predicts, then efficient allocation of the resource might be based on those instead of the entire estimated Qt.

Perhaps an economist like yourself or someone else might step in here, rewrite macroeconomics a bit and show us a light that leads us out of the darkness. Because it is certain in my view that in using the current economics of extraction we are stealing the scarce, precious resources from future generations. To make that less abstract, that would be our kids and their kids.

In talking about the economics of this, I knew I was setting myself up but I was hoping and still am that something positive might come from the discussion. After you've fed the dog, I'll be looking forward to any proposed solution to the mess we're in that you care to make.
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Halfin on January 4, 2006 - 2:22pm Permalink | Subthread | Parent | Comments top
I'm actually a cryptographer.
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42 comments on The Extraction of Exhaustible Resources

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