User Cost in Oil Production

M.A. Adelman


M.A. Adelman, October 1990The assumption of an initial fixed mineral stock is superfluous and wrong. User cost (resource rent) in mineral production is the present value of expected increases in development cost. It can be measured as the difference between in-ground market value and development cost, or estimated approximately from current development cost. For private or national-income accounting, mineral reserves should be treated as a renewable inventory. Adjustment for change in inventory may increase or decrease the income of a mineral producer, but an increase is more likely.