The Economics of Space Development

Abstract This chapter examines the growing interest in lunar exploration, particularly water ice mining to provide spacecraft propellant. It develops a mathematical framework to analyze lunar resource development economics, incorporating propellant demand, investment alternatives, and environmental impacts on Earth and in orbit. We compare the equilibrium of market-driven development in cislunar space with the social optimum and identify ways that the market equilibrium may fail to maximize society’s economic welfare from development of cislunar space. We show that interactions between positive and negative externalities from orbital and lunar development make the nature of the market failure ambiguous and consider conditions under which optimal policy should encourage or discourage space development.