The role of price expectations and legal uncertainties in ocean mineral, exploration activities

In this paper, a standard exploration activities model is modified and applied to time series, data from deep seabed mining of a group of minerals where the number of patents is used as a proxy, for the level of mineral exploration activities. In addition to the rational expectations model, price, expectations formation for mineral prices is decomposed into trend and cyclical components using the, HP-filter method. Estimated parameters from the supply and cost functions are used to determine the, shadow price of the minerals. The non-linear instrumental variables estimator is employed to estimate, the exploration activities function. While the rational expectations model shows the importance of, current prices on exploration efforts, the HP-filter model suggests that firms concentrate on the trend, in prices rather than the short-run cyclical fluctuations. Also, while the U.S. refusal to ratify the LOSC, has increased the legal uncertainties surrounding the management of ocean resources and reduced the, incentive to engage in exploration activities, the passage of the ISA's main legislative accomplishment, regarding regulation of the explorations for polymetallic nodules appear to have made a positive effect.

► An exploration activities model is applied to the ocean mining of a group of minerals.
► We use number of patents as a proxy for mining exploration activities.
► Shadow price of minerals, exploration cost, reserves, and a dummy variable for international legal uncertainties are tested.
► Rational expectations and HP-filter models are employed using time-series data.
► Firms concentrate on the trend in prices rather the short-run cyclical fluctuations.