Mis-Reporting of Natural Resource Reserves ∗

The recent tightening of many natural resource markets has raised concerns about supply security. In addition to geological and political uncertainty, it is often argued that exporting countries substantially over-report their reserves. This article analyzes conditions and consequences of successful mis-reporting of natural resources, employing a signalling game in an international trade framework. Exporting countries which have private information about total reserves use current supply as a signal for reserves. The exporting country is said to engage successfully in mis-reporting when current supply is uninformative about remaining reserves — i.e. when a pooling equilibrium prevails. It is shown that a pooling equilibrium exists if and only if, first, R&D for substitutes of the natural resource depends on expected future supply and second, the signal’s cost is limited. Finally, regardless of information asymmetries exporters of the natural resource backload supply to discourage substitution R&D.