J. Swierzbinski, in Encyclopedia of Energy, Natural Resource, and Environmental Economics, 2013 A Benchmark Economic Model of an Exhaustible Resource Industry. Select the purchase endobj endobj The Hotelling rule for prices of exhaustible resources. Oil is an exhaustible resource. Journal of Political Economy, 39,137-175. Introduction Modern contributions to the economics of exhaustible natural resources, such as oil or coal, generally start from one form or another of the famous ‘Hotelling Rule’, first put forward by Harold Hotelling (1931). This item is part of a JSTOR Collection. (Apr., 1931), pp. af= q … (Gray, 1914, p. 468) 1 This capital approach was developed formally by Hotelling (1931), who demonstrated that the rate of return from holding on to exhaustible … In 1931, Harold Hotelling, an American economist has published an article with title "The economics of exhaustible resources", which findings serve as a basic theory for economics of non-renewable resources.His theory is fundamental in two aspects: first, this theory defines optimal rate of extraction of the mineral (exhaustible) resource, second, he introduced the concept of Hotelling … It is the result of a formal model presented by Harold Hotelling, one of the luminaries of 20th century economics, in his 1931 publication The Economics of Exhaustible Resources. [1^`J4nThU#W4%BYk!s\!jk2NT1G/9-T,BhM^cJ=m01N[,C95OHggGrH-pmB@1HsY.Sc*XNW.HtI-mKX"7>"QFkCZf0s"$NMK(uh2X-OZ6-,d$XbRfQuW-CE&CRsH)^/BD,r4E+=go0i3/I08SC]QUfARpVt*.MOHODbRs%;Gbf0NFKA`r_o,OF'TQf#-YZ3kX/!WVL]]03HWi\D`s/3d8b9%A+nsY;M3J4H2:%mMY!DA3/\(DI\N8s&?mdc.OXh:2Ce,ccSGUHf1F\%iDCjg/L19MnYtPMGl0d+\".HN/a2K">Po_'s6PB1E4>Vbe^`3FUlQr('hc+3/&&Su9)XS(YLN1&&U;8G\AAGUd:GN#8&MC.X8g]JE@&BWX/i91]&2u,e^`4#e^`4#e^`4#e^`4#e^`4#e^`4#"T8^E.F;)~> In 1931, Harold Hotelling, an American economist has published an article with title "The economics of exhaustible resources", which findings serve as a basic theory for economics of non-renewable resources.His theory is fundamental in two aspects: first, this theory defines optimal rate of extraction of the mineral (exhaustible) resource, second, he introduced the concept of Hotelling … endobj Key Words Exhaustible resources, Hotelling model, Optimal extraction, Em-pirical tests, Oil and gas, Non-fuel minerals Abstract We review the empirical literature that extends and tests the Hotelling (1931) model of the optimal depletion of an exhaustible resource. 4 0 obj <>stream In its simplest form the rule states that in equilibrium the net price, the price net of marginal costs and marginal taxes, rises at the rate of interest. For a non-renewable, exhaustible resource with completely known stock, no discoveries possible, no alternatives, no recycling, private ownership and constant costs of extraction, the price of the resource will increase at the interest rate over time. endobj This equilibrium law is in the literature commonly referred to as the Hotelling rule. In LN-1 we found that the resource rent increases by rate r, cf. Access supplemental materials and multimedia. This prediction is commonly known as the ‘‘Hotelling rule.’’1 Assuming constant marginal extraction costs and no technological progress, among other conditions, resource prices should be increasing over time. %PDF-1.4 whence eliminating X and solving for q, q = I-Oe(t - T) ](a-v)/2,#. YSq@DIU8)m_H)gO2Y;%Q#f96(W-8XB(tp`MKh.?MH(JnpI[\2n@4RBT(j``6"Q@m6N9bc&KbdHb+fPaX,1Vo1WoJST63k,.hTuNK--1!Uj#M?f-C4%!ThH&.LVPKoqW@B`bPAhXGu$MJL`j@8%*qP'`"ahgQ<0kr&@+k_/lP&naEuXg6NlA]EHn!*R$F3k-bDh+-L)Lm:fRlP.-[.VSfe;Wmj!N%VAN:o8eq^CX+R>Y'M\m'n0Z;ROR&=o3sGF9'<0B)rsVn*%;XmocjFX_BUR*?It9YX]8]R==T12W6REo'[I#cmke##'/@s^L*)[>^sp88[`MZo1KaB!#$CT12mkN?HPDW#VV7QCQ1GYPE*H!k2/&S0*N;@Fl4kBNlM=^q)Ec5%W%/&;Wg9RSa_?'Varr#NX8G0a#tUPDf8W;c>eAn$K4YST&m4W[4SrGnorG'aD\.*8]BGJhDan8c(qXF1,Z`!op8N*#d7"qmA_2uT]QoZ&tHr<9@td$hlu*?]C$%2K&a4fJJEe+%4bajSWrXZN"tFB)=m(XR,FV2`c'6@KPsu_lKY2'TD-?Dd2.IS=Rk\AUu7m>`c'6@KPsu_lKY1(Y@+HGSc@t)0DMf5eQ9Xq?'XW&`E--uY58r@?%'? The theory is briefly described to set the 7 0 obj<> The theory assumes that events take place in … Journal of Economic Literature The rule interprets the economic law of demand and supply that states when the demand is high and supply is low price of the commodity rises. JSTOR is part of ITHAKA, a not-for-profit organization helping the academic community use digital technologies to preserve the scholarly record and to advance research and teaching in sustainable ways. Hotelling’s rule … According to him, under optimal conditions, the price of an exhaustible resource, the net of extraction costs must be rising at a rate equal to the rate of interest on other assets. Once composed primarily of college and university professors in economics, the American Economic Association (AEA) now attracts 20,000+ members from academe, business, government, and consulting groups within diverse disciplines from multi-cultural backgrounds. trends are simply an anomaly to the standard Hotelling-theory price trend, we examine data on the prices of 11 exhaustible resources for which we have a long historical record.2 The accompanying table displays the average annual growth rates of the prices (logged and adjusted for inflation) of these exhaustible resources. endstream Barnett, Harold J. and Chandler Morse (1963) Scarcity and Growth: The Economics of Natural Resource Availability John Hopkins Press for Resources for the Future, Baltimore. renewable resources in his quite famous article “The Economics of Exhaustible Resources”. Another ten years are added to the Hotelling time line by Livernois (2009). This video solves for the price of a scarce resource in a two-period model for an exhaustible resource. The economics of exhaustible resources is expressed through Hotelling’s rule. Stiglitz, Joseph E, 1976. 137-175. Shantayanan Devarajan and Anthony C. Fisher, Published By: American Economic Association, Access everything in the JPASS collection, Download up to 10 article PDFs to save and keep, Download up to 120 article PDFs to save and keep. Hotelling's theory, or Hotelling's rule, posits that owners of non-renewable resources will only produce a supply of their basic commodity if it can yield more than … endobj In this video, we solve two problems for maximizing dynamic efficiency of a non renewable resource over two time periods. Hotelling's rule defines the net price path as a function of time while maximizing economic rent in the time of fully extracting a non-renewable natural resource.The maximum rent is also known as Hotelling rent or scarcity rent and is the maximum rent that could be obtained while emptying the stock resource. The economics of exhaustible resources is expressed through Hotelling’s rule. © 1981 American Economic Association 3 0 obj<> The economics of exhaustible resources is expressed through Hotelling′s rule. 13 0 obj<>>> endobj Hotelling, H. (1931) The Economics of Exhaustible Resources. We do so using Hotelling's rule. option. we reformulate Hotelling’s (1931) classic model of exhaustible resource extraction as a drilling problem: rms choose when to drill, but production from existing wells is constrained by reservoir pressure, which decays as oil is extracted. Real world prices do not follow this pattern, however. 8 0 obj<> For terms and use, please refer to our Terms and Conditions Review of Economics and Statistics 92 (2), Oil is an exhaustible resource. The Journal of Economic Literature (JEL), first published in 1969, is designed to help economists keep abreast of the vast flow of literature. Hotelling's Rule in the limit: an agent-based exploration of the model space David S. Dixon April 23, 2012 Hotelling's Rule is the observation that the exploitation of a … In 1931, Harold Hotelling proposed an answer.1 His remarkably simple theory has become the benchmark for research on the price of an exhaustible resource. The Economics of Exhaustible Resources Harold Hotelling The Journal of Political Economy, Vol. Learn more about the Hotelling rule in a paper coauthored by Mr. Cunha, “The Hotelling Rule in Non-Renewable Resource Economics. H�t��n1���sY.����^KU��P%Mh]�JHQQ $*���ʂz����7���q1��no�8=-��� ��� �x����5P�����tꇒ�Sjgct��[�� �[U�[��N�R�#�J�z�qm�)�_��qRE���V=G�=�5��{~@� ��� �j�3��x`imB������U'�|��W���I�a��A��:tC�����b4ϴT��Pf����Ct��#R����`x���/;Hlo���UfW�y��I+,�+��$^|V'���b�xۋ��&Sg��V���rbk��Q"�1�a�3��};n7����b՛ج���_�6�|��;`:m��WڸV�"�O���~t�6}�e�{�G�]�C���^��-����dޢ��36�/��O�}��6� ���:��@Ot����%, g)62o)5Yp=D&Nf(2VjRVNeY[e^gR,#h8:dUa&3'e,4hJ+Js6>Anlj>S?aC8[qJ#*7GN]fc"#-)F/nG/5>RnD6u0C5U`DEif"'GV%`IN?A3=Cu_7IrVnYpj:]?\3(FP:=G]Z[;G1$X"X(K_-)ehlahDLa"8g[f"*-sWd1-lO=!s0,Af89s`_-8LfLi/8Gl5%C`sB4ZPFiAGnbS>8!Zib"_fD_Z?F>Bi`$pYW[;=$.kYTo/3mXkCFD+F$7L?s'E=?iei!O1b*D7KMW>D@nI`kC;"kCQd,[%o@O&Mn^_XhaUEN7q(/@\A&=msV;Ya8Nor@O7EZ31Z?5XSk2>_04'(Z^@pGiD]='r,81MW@UgCC-4#/WmCE!=j"40YC[jZ)7oF_dtr%@.=uLb/6#I/.%In1;ELJWB0tCU1=Y&D. THE ECONOMICS OF EXHAUSTIBLE RESOURCES 141 endobj Read your article online and download the PDF from your email or your account. We show that oil production from existing wells in Texas does not respond to oil prices, while drilling activity and costs respond strongly. endobj Natural Resource Economics can be traced back to Hotelling's paper "The Economics of Exhaustible Resource" from 1931 and thus it even predates the renewed interest in … The model implies a modi ed Hotelling rule for drilling revenues net of costs, explains why the production Hotelling’s rule states that the. The main reason of his study was a division in opinions between the public and the resource owners concerning how to deal with the extraction of non-renewable resources. !r@80Q. 66(4), pages 655-661, September. endstream Hotelling's rule defines the net price path as a function of time while maximizing economic rent in the time of fully extracting a non-renewable natural resource. ... TIIE ECONOMICS OF EXHAUSTIBLE RESOURCES CI. What is the Hotelling’s rule (not to be confused with Hotelling’s law–it’s the same Harold Hotelling, but a wholly different issue)? 2. The most influential approach to modeling intertem­ poral depletion of exhaustible resources is generally at­ tributed to Hotelling (1931). Optimal depletion of an exhaustible resource, there­ fore, is a problem of intertemporal allocation. Key Words Exhaustible resources, Hotelling model, Optimal extraction, Em-pirical tests, Oil and gas, Non-fuel minerals Abstract We review the empirical literature that extends and tests the Hotelling (1931) model of the optimal depletion of an exhaustible resource. JEL issues contain commissioned, peer-reviewed survey and review articles, book reviews, an annotated bibliography of new books classified by subject matter, and an annual index of dissertations in North American universities. 39, No. %���� 12 0 obj<>>> JSTOR®, the JSTOR logo, JPASS®, Artstor®, Reveal Digital™ and ITHAKA® are registered trademarks of ITHAKA. endobj resource scarcity, should grow at the rate of interest [8]. ;n58Ac=+R-I]3hNOg!4%BYgp'r)B[_e>]B1'T'WF-PHnJ&G=b\_EN%h2J_KWZgF7QP]';^7XcHmXE.j=OX5Q:e)SDa~> For the purposes of this paper, there are two main themes of interest in the Hotelling's Rule literature: theoretical eorts to broaden the scope of Hotelling's Rule, and econometric eorts to nd evidence of the Hotelling's Rule … In an efficient exploitation of a non-renewable and non-augmentable resource, … To explain these facts, we reformulate Hotelling’s classic model of exhaustible resource extraction as a drilling problem: firms choose when to drill, but production from existing wells is constrained by reservoir pressure, which … "Monopoly and the Rate of Extraction of Exhaustible Resources," American Economic Review, American Economic Association, vol. All Rights Reserved. The seminal empirical challenge to Hotelling. In this episode, Michael Whalen is joined by BRG Director Roberto Cunha to discuss the fundamentals of the Hotelling rule and how this long-standing rule has prevailed in today's economy. In this paper … The Hotelling rule states that, for an exhaustible resource, the difference between price and marginal cost – the scarcity rent 4 – should rise at the rate of interest. I .is in ".I General Mathematical Theory of Depreciation," by Harold Hotelling, Jolrrnal of the American Statistical Association, September, 192 j. This prediction is commonly known as the ‘‘Hotelling rule.’’1 Assuming constant marginal extraction costs and no technological progress, among other conditions, resource prices should be increasing over time. Hotelling’s theory is used by economists to predict the price of an exhaustible resource based on prevailing interest rates. This paper has laid the foundation for further research in the field of non-renewable resource … resource scarcity, should grow at the rate of interest [8]. The historical events described above laid the foundation to why Harold Hotelling, in 1931 presented a theory regarding exhaustible resources. The simplest version of Hotelling’s theory—more sophisticated versions will be discussed below—suggests that exhaustible resource prices should grow at the real … 16 0 obj <>stream we reformulate Hotelling’s (1931) classic model of exhaustible resource extraction as a drilling problem: rms choose when to drill, but production from existing wells is constrained by reservoir pressure, which decays as oil is extracted. ©2000-2021 ITHAKA. Review of Economics and Statistics 92 (2), Oil is an exhaustible resource. Barnett and Morse track the relative prices of exhaustible and non-exhaustible resources and a measure of unit extraction costs … Modern contributions to the economics of exhaustible natural resources, such as oil or coal, generally start from oneform or another of the famous ‘Hotelling Rule’ … The economics of exhaustible resources is expressed through Hotelling’s rule. 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the resource and, hence, affect the value of future scarcity rents. 5 0 obj<>/Font<>>> The rule is derived from the work of U.S. economist Harold Hotelling in his paper “The Economics of Exhaustible Resources” (Hotelling 1931), published in the Journal of Political Economy. endobj The Hotelling rule is an application of the concept of a competitive (uniform) rate profits to all processes in the economy, whether these are conservation or The time of exhaustion T is related to the amount originally. Learn more about the Hotelling rule in a paper coauthored by Mr. Cunha, “The Hotelling Rule in Non-Renewable Resource Economics. Gau0C?#SIU'ReT:i/=iSLhZ.tOoc%rPI]q8D93E'^sMe+Q5PU_,cW+)0DkF;r#o>q;R/D!!??qQH1*oZSjW@%l-/!QaRq5QbBo"$s&+WFNT23lr`g04fM)u8%hhW-JQG)`76)k3FCQ<0X-8WTo5V4dc3rUUANtQ%LqQ9SlrMbcLW!Q6/d1@@P.hE0T\kHO68c"2Ca3jQg]UpHl2KkN/SsB0Nm;ENqH)^^$&q8b:p5Y=6_o:Z:r[i5]J.pAu/O@5$bW\&2Psa5*5WJ>ka9R.7u`Vj"TT`8I,&ik(i>J:X^%?[)H^l:)qO=V"1)Fsj7o#&Xelk2G;m:-*O]'$SSuf&-+^WTc>e+Hn+\>.&/-&%h+3P3NnaVOdB3#.(hW9Ve\j]HVO+MY%Tj-]HK]]8MS;lYoGDOWdiX,]Ool`$[?RcBq'.#m?KGF'%#A9pVQGO?9)cW%iqdXSkDRP0]FgeBacsY#hj;X/cR.?!6^^&(>tID!:pS,_J(XF&_FWn$n.0h:h-I-^q+#8G:kb<9JiU;O>k]80opmS0\a=s!Y;P1g$C%,pXWm"0Z>CFl3A/'3H=D>q$7SUMCq[!%<>BM7&!8UVB6Fg!kRa[Ba"U21^"itU6[Uh)T)WK70)o6S%)dB:fUh+97puR>mJRj["f=Z_&Q\p[,&KV@f4O#JA/KVs5[$5C^:RbO(rWZ6nU))il8R@Y.)=M"Q[e(#38f2YF+X,r('h,rLartSu"?_ho$/7;?F%6&7dM12GeT(4tOHF&m.bD:j98>5QVO#q>n;KrU'4WQR=.mn*VidUIb"I@l5oX6md(1,0bl;f@5OnJCk.*YcU3>H0:?Eq?o1jJmIPn1TC3PDlfNFP-!:=TYDEmF3j9876904@'W^U?+;(p)#fA]u^;B:,gb#dgKJ^=e,? 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