The Hotelling Rule in Non-Renewable Resource Economics: A Reassessment

Roberto P. Ferreira da Cunha and Antoine Missemer
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Roberto P. Ferreira da Cunha: Berkeley Research Group, LLC

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Abstract: Harold Hotelling's 1931 contribution is known for providing a basic principle—the Hotelling rule—to the economics of non‐renewable resources. Nearly 90 years later, empirical tests conclude the rule lacks empirical validity, requiring strong amendments to describe the long‐term, aggregate behaviour of its target object. On the basis of Hotelling's unpublished archival material, this paper revisits the place given to the Hotelling rule in non‐renewable resource economics. Our reconstruction shows that Hotelling's 1931 paper has been misinterpreted: from the outset, the Hotelling rule was not valid for mineral resources. In contrast, the consideration of two inherent geological constraints, alongside exhaustibility, offered the opportunity for an alternative basic framework, capable to generate bell‐shaped and U‐shaped equilibrium trajectories for supplies and prices, respectively. Inspired by this unknown aspect of Hotelling's work brought to light by our archival investigation, we sketch this alternative basic model, enabling non‐renewable resource economics to circumvent the empirical shortfalls of the Hotelling rule.

Date: 2020
New Economics Papers: this item is included in nep-env, nep-his and nep-hpe
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Published in Canadian Journal of Economics, 2020, 53 (2), pp.800-820. ⟨10.1111/caje.12444⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03216483

DOI: 10.1111/caje.12444

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