The Impact of Selling the Federal Helium Reserve (2000) / Chapter Skim
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5 Economics of the Helium Market
5 Economics of the Helium Market
Pages 49-54
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From page 49... ...
Theoretically, in a perfectly competitive market, this value will appreciate over time at the discount rate minus the cost escalation rate. Helium prices can be expected to follow this rising path, although the rise may be offset somewhat by the discovery of new deposits or the development and implementation of new technologies (e.g., for conservation and recycling)
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From page 50... ...
The 1 percent growth path would reflect mistaken judgement of those who recently invested in private inventories. This scenario would most likely involve choppy price movements rather than the smooth curve depicted in the figure.
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From page 51... ...
The latter case would not affect actual helium consumption, but it would shift ownership from the government to the private sector and mean that carrying costs would be borne by industry. 4 The idea that holders of an exhaustible resource will require a rate of return roughly equal to the real interest rate is the basic Hotelling model.
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From page 52... ...
If social costs and benefits are associated with the stored good, then the social marginal costs and marginal benefits must also be balanced. in either case, as noted earlier, the balancing is an inherently intertemporal decision reflecting expectations about fixture prices as well as the discounting of opportunity cost associated with resource extraction.
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From page 53... ...
Even if private storage is smaller and more volatile than is socially desirable, however, there is an incentive, if prices fluctuate, for the private sector to hold precautionary and speculative inventories. If the policy choice is a combination of public and private storage, the optimal mix depends not only on the factors that prevent private holdings from reaching the socially optimal level but also on the feedback effect of government reserves on the size of private reserves.
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From page 54... ...
Even if it is not, the shortfall does not necessarily imply a requirement for government storage (as distinguished from government provision of storage facilities, for example by lease to the private sector)
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