Futures Markets, Price Stabilization and Efficient Exploitation of Exhaustible Resources
ENVIRONMENTAL AND RESOURCE ECONOMICS
Posted: 20 Dec 1998
Markets for natural resource futures contracts and cash forward contracts experience a rapid growth. According to theory, this should result in more efficient resource depletion, implying that price formation is more consistent with Hotelling's rule. The rationale of this stabilizationeffect is briefly discussed. Next, we analyze the impact of expanding futures markets on the behaviour of individual resource owners trading on the cash market. Using a simple pulse extraction model, we demonstrate that the expected time of depletion can shift to the present or the future, and that utility of exploitation can go up or down, as market prices are stabilized.
JEL Classification: Q32
Suggested Citation: Suggested Citation