THE ROLE OF INVESTMENT IN MULTIPLE-DEPOSIT EXTRACTION - SOME RESULTS AND REMAINING PUZZLES

Papers by Olsen and by Cairns and Lasserre analyze equilibrium in a resource industry where deposit quality varies and where extraction requires capital investment. The papers substantially qualify the conventional understanding of such matters as the form of Hotelling's rule, the role of deposit size, the simultaneous extraction from deposits of different quality, and the price path. The argumentation, however, à intricate and the crucial role of investment as such à not easily distinguishable. We clarify the intuition behind the results, bring out the role of the various assumptions, and raise important remaining issues. © 1991.