Measurement of the in situ value of exhaustible resources: An input distance function

We develop a methodology to derive the shadow in situ price of nickel by utilizing an input distance function, which can improve upon previous estimates. Our estimates hold regardless of market power and actual cost minimization. The time path of the shadow in situ price is obtained using annual data for Inco, a nickel company. Empirical results suggest a slightly increasing in situ price of nickel over the period 1947-92, but the dynamic optimality condition does not hold. Comparison with the time path of the in situ price obtained by estimating a cost function indicates a sizable discrepancy between the two time trajectories.