Modeling Depletion in a Mineral Industry: The Case of Coal

Abstract

This paper has a two-fold purpose. The wider and more abstract purpose is estimating the long-run marginal cost of producing a depletable resource. The second purpose is the illumination of several important policy issues dealing with the development of coal resources. The essence of depletion is the movement from cheaper to more costly deposits. Econometric models estimated from past observations on prices and outputs cannot capture this movement, since the past reflects only the more favorable deposits.