MEHR Seminar: Brooks Kaiser, Gettysburg College, 'Rocky Seas: Dynamics of the Transition from Whale Oil to Petroleum'
Abstract: This paper investigates the transition from whale oil to petroleum that occurred in the mid-19th century in terms of dynamic efficiency of natural resource use and the timing of the transition between these resources. The discovery of petroleum is often presented as a stochastic event that ‘saved the whales'; we argue that the timing fits a deterministic model of transition driven by investment in knowledge needed for a new resource. Whale harvesting was an open-access fishery experiencing increased costs of production that would likely have saved the whales in any case. These increasing costs and the increasing demand for luminants drove the search for substitutes; successful drilling for petroleum presented the best substitute and cemented the decline of the whaling industry. We evaluate, through data-calibrated simulation, the first-best outcome for the transition from whale-oil to petroleum and compare this to the welfare generated under a second-best scenario with extraction of the open-access resources under perfect information (generated by hindsight).