Technological Change, Depletion and the U.S. Petroleum Industry

Abstract

A common claim in the nonrenewable resource literature is that improvements in technology may largely offset the effects of increasing scarcity over time. This study provides perhaps the first empirical evidence on this issue by analyzing the determinants of the average finding cost for additional petroleum reserves in the U.S. over the 1967-90 period. Using a new index of the level of technology, our analysis suggests that technological change played a major role in allaying what would otherwise have been a sharp rise in the average cost of finding additional reserves of natural gas. The impact of technological change on finding costs for U.S. crude oil reserves has been more modest.

Keywords: Technological Change, Productivity Growth, Cost Functions, Quality Ladders Model, Varieties Model, Nonrenewable Resource Depletion

JEL Classification: D24, Q31, L71