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Adjustment Costs and Returns to Scale: Some Theoretical and Empirical Aspects

G. Campbell Watkins

Year: 1993
Volume: Volume 14
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol14-No1-11
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Abstract:
In specifying third generation models of factor demands, adjustment costs are frequently treated as a function of net rather than gross investment. Such specifications assume replacement investment is frictionless and in equilibrium adjustment costs are zero. Recognition that adjustment costs may reflect not only net but also gross investment leads to a more complex model. But the revised model implies increasing long-run average costs. Such a model can still be specified to impose constant long-run average costs, or constant returns to scale. The latter condition is often desirable to avoid confusion in estimating technological progress. However, empirical work suggests that conventionally labelled expressions of adjustment costs embrace other influences. Proper measurement and identification of such costs may well require more finely tuned approaches.



How Might North American Oil and Gas Markets Have Performed with a Free Trade Agreement in 1970?

G. Campbell Watkins and Leonard Waverman

Year: 1993
Volume: Volume14
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol14-No3-6
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Abstract:
Deregulation on both sides of the U.S.-Canadian border has made certain aspects of trade agreements largely superfluous in the near term. It is over the longer term that the impact of the NAFTA will become apparent. To grapple with this issue, simulations are attempted of oil and gas trade between the United States and Canada as if the NAFTA had been in place before the first oil price shock of 1973. The simulations suggest substantial additional exports of Canadian oil and gas would have enabled the United States to back out volumes of OPEC oil during the critical years of the late 1970s and early 1980s. This would have served to dampen world oil markets during the years of OPEC ascendency--not dramatically, but not negligibly either. By promoting closer integration of energy markets, the NAFTA should lead to more cohesive North American responses to any future world oil shocks.



Preface

G. Campbell Watkins

Year: 1999
Volume: Volume 20
Number: Special Issue - The Cost of the Kyoto Protocol: A Multi-Model Evaluation
DOI: 10.5547/ISSN0195-6574-EJ-Vol20-NoSI-1
No Abstract



Costs of Aggregate Hydrocarbon Reserve Additions

M.A. Adelman and G. Campbell Watkins

Year: 2004
Volume: Volume 25
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol25-No3-3
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Abstract:
`Oil Equivalence' is widely used to measure total hydrocarbon activity. Natural gas is converted to oil using a fixed factor, usually based on thermal measurement. In turn, expenditures on oil and gas are divided by such `oil equivalence' volumes to define unit costs, especially of reserve additions. This approach lacks economic content. We show its implicit assumptions and constraints, and develop an alternative aggregation method using index numbers, with an example.





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