Resource Discoveries, Learning, and National Income Accounting

30 Pages Posted: 20 Apr 2016

See all articles by Kirk Hamilton

Kirk Hamilton

World Bank

Giles Atkinson

London School of Economics and Political Science (LSE) - Department of Geography and Environment

Date Written: June 1, 2013

Abstract

Questions about the ultimate size of mineral and energy resource endowments and the degree of fiscal prudence which should be exercised by countries engaged in resource extraction have become central for many developing countries during the recent resource boom. To explore these questions, this paper develops a model of optimal resource extraction and discovery that combines two polar assumptions: (i) that discovering a resource today drives up the cost of future resource discoveries, and (ii) that extracting resources yields knowledge that reduces the cost of discovery. Although the model shows that resource discoveries should be valued at marginal discovery cost in measures of national saving and income, the ultimate size of the resource that can be exploited is the result of the interplay between rising discovery costs and accumulating knowledge. Empirical tests of the model show that the resulting income estimates would be extremely volatile for many extractive economies, owing to the lumpiness of resource discoveries. Two alternative accounting approaches, based on Hicksian concepts, yield more intuitive and less volatile income estimates. The question of fiscal prudence for extractive economies hinges on how optimistic countries are about the risks in future mineral and energy markets, and how far into the future these countries are willing to project optimistic trends when making decisions about how much to consume and how much to save of current resource revenues.

Keywords: Environmental Economics & Policies, Economic Theory & Research, Debt Markets, Climate Change Economics, Banks & Banking Reform

Suggested Citation

Hamilton, Kirk and Atkinson, Giles, Resource Discoveries, Learning, and National Income Accounting (June 1, 2013). World Bank Policy Research Working Paper No. 6505, Available at SSRN: https://ssrn.com/abstract=2285342

Kirk Hamilton (Contact Author)

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Giles Atkinson

London School of Economics and Political Science (LSE) - Department of Geography and Environment ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
114
Abstract Views
761
Rank
514,857
PlumX Metrics