The effect of opening up ANWR to drilling on the current price of oil

The Effect of Opening up ANWR to Drilling on the Current Price of Oil R. Morris Coats and Gary M. PecquetEveryone knows that oil discovered today, perhaps in the Alaskan National Wildlife Refuge (ANWR), has no effect on prices until that oil hits the market. For instance, on its website, the Democratic Policy Committee, (http://democrats.senate.gov/~dpc/pubs/107-1-72.html) states that “it will require seven to twelve years from approval before there is any oil production from the ANWR area. Therefore, production in ANWR will have no impact on current or short-term gasoline and oil supplies and prices.” While this is something that everyone seems to know, it is a case that the theory held by everyone just happens to be wrong. Since future prices are expected to be lower, future profits are also lower, so the value of oil not produced now, but held for future sales, is lower, making it more profitable to go ahead and produce and sell now instead of waiting for future profits. Using oil now reduces the amount of oil available for the future, which involves the opportunity cost of forgone future profits, which are sometime called the marginal user costs or scarcity rents. In this paper, we use simple two-period models to show that if an amount of newly discovered oil is significant enough to reduce prices in the future, any drop in future prices reduces the future profitability of oil, reducing the marginal user costs of oil now. That reduction in the marginal user costs reduces the current price of oil just as if there were a reduction in the marginal costs of extracting oil now. We explore the effects of the reduction in marginal user costs in the competitive or price-taker case as well as the price-searcher case, where a monopolist or dominant supplier responds to a substantial discovery by another seller, but where the discovery will not contribute to production for some years to come. In both cases, we find that oil that is expected to reach the market at some time in the future has an immediate impact on oil prices. Topic Area: Q4 EnergyANWR; resource discovery; timing of price impact; speculation

Texas Treasury Warrants, 1861-1865: A Test Of The Tax-Backing Of Money

vThe Confederacy relied heavily on inflationary finance. Of the states of the Confederacy, only Texas was able throughout the war to enforce mandatory tax payments. In November 1864, Texas enacted fiscal measures designed to support the value of its state-issued currency, while it was increasing the amount in circulation. These measures were effective in doubling the value of the Texas warrants. As a result, Texas was able to continue to operate even after the defeat of the Confederacy elsewhere, until the state was overrun by Union forces. These results strongly support the tax-backing theory of money.

The effect of opening up ANWR to drilling on the current price of oil

The Effect of Opening up ANWR to Drilling on the Current Price of Oil R. Morris Coats and Gary M. Pecquet Abstract: Everyone knows that oil discovered today, perhaps in the Alaskan National Wildlife Refuge (ANWR), has no effect on prices until that oil hits the market. For instance, on its website, the Democratic Policy Committee, (http://democrats.senate.gov/~dpc/pubs/107-1-72.html) states that “it will require seven to twelve years from approval before there is any oil production from the ANWR area. Therefore, production in ANWR will have no impact on current or short-term gasoline and oil supplies and prices.” While this is something that everyone seems to know, it is a case that the theory held by everyone just happens to be wrong. Since future prices are expected to be lower, future profits are also lower, so the value of oil not produced now, but held for future sales, is lower, making it more profitable to go ahead and produce and sell now instead of waiting for future profits. Using oil now reduces the amount of oil available for the future, which involves the opportunity cost of forgone future profits, which are sometime called the marginal user costs or scarcity rents. In this paper, we use simple two-period models to show that if an amount of newly discovered oil is significant enough to reduce prices in the future, any drop in future prices reduces the future profitability of oil, reducing the marginal user costs of oil now. That reduction in the marginal user costs reduces the current price of oil just as if there were a reduction in the marginal costs of extracting oil now. We explore the effects of the reduction in marginal user costs in the competitive or price-taker case as well as the price-searcher case, where a monopolist or dominant supplier responds to a substantial discovery by another seller, but where the discovery will not contribute to production for some years to come. In both cases, we find that oil that is expected to reach the market at some time in the future has an immediate impact on oil prices. Topic Area: Q4 Energ

Texas Treasury Notes and the Mexican-American War: Market Responses to Diplomatic and Battlefield Events

Studies have demonstrated the impact of battlefield outcomes on financial markets in the case of the US Civil War and other existential struggles. But many wars (such as Vietnam and Iraq) have been wars of choice. In these wars, military victories have not necessarily led to peace. Investigation of the market impact of battlefield and diplomatic events in the context of a war of choice offers the opportunity to distinguish the market's interest in peace as distinct from victory; and, the usefulness of identifying events from the study of history as an adjunct to the empirical identification of break-points.

Can Interest-Bearing Money Circulate? A Small-Denomination Arkansan Experiment, 1861-63

Legal restrictions theory suggests that dominance of non-interest-bearing currency is possible only because legal impediments prevent financial institutions from offering interest-bearing alternatives. A viable interest-bearing medium must be issued in denominations low enough for day-to-day use, however, and without historical examples of small-denomination interest-bearing issues we cannot properly test whether interest-bearing currency will circulate as legal restrictions theory predicts. Civil War Arkansas offers a rare instance where large quantities of small-denomination interest-bearing money were actually issued, mostly below $5. The results of this Arkansan experiment show that small-denomination interest-bearing issues can indeed function as the primary medium of exchange. Copyright 2008 The Ohio State University.

Money in occupied New Orleans, 1862–1868: A test of Selgin’s “salvaging” of Gresham’s Law

Gresham’s law, Tax-backing theory of money, New Orleans, Reconstruction, E41, E65,