A Procedure For Testing For Mineral Resource Exhaustion Using A Combination Of Time-Series And Cross-Section Data

INTRODUCTION Economists have long expressed suspicion of the economic theory of natural resource exhaustion, even in writing articles which have contributed to it (1). Indeed, the gap which separates the pure theory from practical management seems unusually wide. It is doubtful whether a mine manager could possibly know enough about the relevant parameters of his mine to steer it along the optimal paths described by the theorists (2). Nevertheless, enough faith in the theory remains that mine managers are suspected of being a separate breed whose behavior must be studied in special courses using specialized text-books, collections of readings, and journals (3). The implied hypothesis, that mines and natural resource firms are managed differently than other firms, is the subject of this paper. In the next section the theory is developed and analyzed. In section III, I discuss the implications of the statistical results that have been obtained. Finally, conclusions are reserved for section IV. THE MODEL A key difference between the traditional theory of natural resource production and that of other forms lies in the set of variables which ire assumed to jointly determine the quantity of output the firm will produce. Output, in the non-resource case, is assumed to be a function of k clearly definable and distinguishable inputs or factors of production, viz., y = f(xl, x2, ..., xk), (1) here