Abstract for: Modelling Paradigms of Metal Markets as Deep Uncertainty: Application to the Cobalt Market
This paper explores the influence of two paradigms on resource extraction that are found in the literature: the opportunity cost paradigm, and the fixed stock paradigm. While the fixed stock paradigm warns for eminent physical scarcity, the opportunity cost paradigm places its trust in the regulating capacity of the price of metals, which signals economic scarcity. Although these two paradigms have been hypothesized, and resource extraction models have been based on either one of the two, there has been no research implementing both paradigms in one model and comparing their results. Since both paradigms call for different policies for regulating resource extraction, research on their validity, and on the possibility of a compromise between the two paradigms is needed to give coherent policy advice. This research explores the effects of two paradigms through implementing both in one system dynamics model of the cobalt market, and thus shows the consequences of the paradigms’ assumptions for the rest of the system. The results show vastly different behavior for the two paradigms, with the results from the opportunity cost paradigm being more realistic in terms of the demand, supply and price behavior, but could give more attention to externalities of resource extraction.