Futures Markets, Price Stabilization and Efficient Exploitation of Exhaustible Resources

ENVIRONMENTAL AND RESOURCE ECONOMICS

Posted: 20 Dec 1998

See all articles by Erwin H. Bulte

Erwin H. Bulte

Tilburg University - Department of Economics; Wageningen University

Joost M. E. Pennings

Maastricht University; Wageningen UR; University of Illinois at Urbana-Champaign - Department of Agricultural and Consumer Economics

Willem J.M. Heijman

Wageningen Agricultural University

Abstract

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

Bulte, Erwin H. and Pennings, Joost M. E. and Heijman, Willem J.M., Futures Markets, Price Stabilization and Efficient Exploitation of Exhaustible Resources. ENVIRONMENTAL AND RESOURCE ECONOMICS, Available at SSRN: https://ssrn.com/abstract=7583

Erwin H. Bulte

Tilburg University - Department of Economics ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 9111 (Phone)

Wageningen University

Hollandseweg 1
6706 KN
Wageningen
Netherlands

Joost M. E. Pennings (Contact Author)

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

HOME PAGE: http://marketing-finance.nl/cv/cvpennings.pdf

Wageningen UR ( email )

Hollandseweg 1
Wageningen, 6706KN
Netherlands

HOME PAGE: http://marketing-finance.nl/cv/cvpennings.pdf

University of Illinois at Urbana-Champaign - Department of Agricultural and Consumer Economics

1301 W. Gregory Drive
326 Mumford Hall MC-710
Urbana, IL 61801
United States
217-244-1284 (Phone)
217-333-5538 (Fax)

HOME PAGE: http://marketing-finance.nl/cv/cvpennings.pdf

Willem J.M. Heijman

Wageningen Agricultural University ( email )

Hollandseweg 1
6706 KN
Wageningen
Netherlands

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

Paper statistics

Abstract Views
816
PlumX Metrics