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Adelman's Rule and the Petroleum Firm

Robert D. Cairns and Graham A. Davis
Authors registered in the RePEc Author Service: Graham Anthony Davis () and Robert Douglas Cairns

The Energy Journal, 2001, vol. Volume22, issue Number 3, 31-54

Abstract: Observing that net prices do not rise as predicted and that resource stocks are not fixed, Adelman questions Hotelling's model of an exhaustible resource. He cites a rule of thumb for valuing oil reserves which is about onehalf that given by the Hotelling valuation principle. We apply an optimization model to a stylized characterization of an oil reservoir. Adelman's valuation rule is confirmed. An r-percent rule emerges as well, but it is not Hotelling's rule. We end the paper with our interpretation of Hotelling's rule. We also consider the role of investment in augmenting the quantities of a resource currently extracted.

JEL-codes: F0 (search for similar items in EconPapers)
Date: 2001
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Handle: RePEc:aen:journl:2001v22-03-a02