Innovate or Excavate? A Raw Resource View of Induced Innovation

Jonas Peeters, PhD Candidate at the Wharton School

Abstract: This project aims to quantify the effect of innovation on commodity price reversions. Commodity prices tend to be stationary with occasional deviations and then revert to their mean prices. There are two big forces behind this reversion. First, there are firms that invest in research that allows them to substitute away from the expensive commodity. Secondly, the commodity producers will expand extraction capacity in response to increased profitability. The former affects the demand side and the latter the supply side. The goal of this project is to estimate the magnitude of the effect of price reversion due to innovation.