The theoretical and empirical viability of measuring the value of resource depletion in the national income and product accounts: The case of oil and gas in the United States

Natural resources enter the economy as inputs into production in the same way that the service of fixed capital enter the economy. The wear and tear on the nation's capital stock is estimated in the economic accounts as the consumption of fixed capital. Currently, the measure for consumption of fixed capital, commonly called depreciation, does not include the wear and tear on the environment. The value of the depletion charge for mineral resources must be derived in a manner that is consistent with economic theory and national income accounting concepts. This dissertation addresses the issues of incorporating exhaustible natural resources, specifically oil and gas, as a form of fixed, reproducible capital in the NIPA's.;Oil and gas, the nation's largest exhaustible resource, are used as the test case for an empirical model of the depreciation of natural capital. While economics of oil and gas production are unique, the conceptual framework developed here serves as a point of departure for the valuation of other exhaustible resources and environmental assets.;This dissertation develops a set of decision criteria for the selection of the theoretical valuation model and proposes an alternative natural resource model to replace the Hotelling model for preeminence in the valuation of natural resources in the national accounts. Eight resource valuation methods are used to produce estimates for the value of depletion and the value of the resource stocks of petroleum natural gas for 1947-1991. The empirical results of the valuation methods differ greatly. The method selected for valuation, therefore, matters greatly. The marginal replacement cost is recommended as the most theoretically and empirically sound method to value the depletion and stock of mineral resources. The simple question of how to measure the wear and tear on the environment in the NIPA's is answered simply: by the cost to replace what has undegone the wear and tear.