Value and depreciation of mineral resources over the very long run: An empirical contrast of different methods

Rubio Varas, M. del Mar

Value and depreciation of mineral resources over the very long run: An empirical contrast of different methods

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Rubio Varas, M. Value and depreciation of mineral resources over the very long run: An empirical contrast of different methods. 2005. handle: http://hdl.handle.net/10230/553

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Abstract

The paper contrasts empirically the results of alternative methods for estimating the value and the depreciation of mineral resources. The historical data of Mexico and Venezuela, covering the period 1920s-1980s, is used to contrast the results of several methods. These are the present value, the net price method, the user cost method and the imputed income method. The paper establishes that the net price and the user cost are not competing methods as such, but alternative adjustments to different scenarios of closed and open economies. The results prove that the biases of the methods, as commonly described in the theoretical literature, only hold under the most restricted scenario of constant rents over time. It is argued that the difference between what is expected to happen and what actually did happen is for the most part due to a missing variable, namely technological change. This is an important caveat to the recommendations made based on these models.