Learning and Price Volatility in Duopoly Models of Resource Depletion Ellison, Martin; Scott, Andrew

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Authors
Ellison, Martin ; Scott, Andrew
Appears In
Journal of Monetary Economics
Subjects
Models; Economics; Banking, finance and accounting industries
Audience
Academic; Trade
Summary
To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jmoneco.2013.06.005 Byline: Martin Ellison, Andrew Scott Abstract: The combination of learning and depletion in non-renewable resource markets adds significant volatility to commodity prices. The market consists of a small number of suppliers who make depletion plans based on their perceptions of how sensitive price is to supply. Learning leads to changes in these perceptions and hence the revision of depletion plans, which can have a dramatic effect on market supply and price. Firstly, price trends upwards faster than the rate of time preference as the non-renewable resource approaches exhaustion. Secondly, there are frequent escape episodes in which price rises rapidly before gradually falling back. The striking volatility and nonstationarity in commodity prices that results has parallels in oil price data. Author Affiliation: (a) University of Oxford, United Kingdom (b) Bank of Finland, Finland (c) London Business School, United Kingdom (d) CEPR, United Kingdom Article History: Received 29 September 2011; Revised 20 June 2013; Accepted 27 June 2013
Bookmark
http://trove.nla.gov.au/work/196732
Work ID
196732

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