Testing the Assumptions and Predictions of the Hotelling Model

Calvin Atewamba () and Bruno Nkuiya ()
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Calvin Atewamba: Institute for Natural Resources in Africa, United Nations University

Environmental & Resource Economics, 2017, vol. 66, issue 1, No 8, 169-203

Abstract: Abstract In this paper, we empirically examine whether the assumptions and predictions of the Hotelling model are consistent with patterns observed in data. We consider nonlinear functional forms for the extraction cost and resource demand to develop an empirical Hotelling model with technological progress and stock dependent extraction costs. Using panel data on fourteen nonrenewable natural resources to estimate this empirical Hotelling model, we get qualitatively different results as compared to the related literature. We find evidence of stock-dependent extraction costs for most resources. There is no evidence against the linearity of the optimal extraction rate in the resource stock for almost all resources studied. Furthermore, the Hotelling model may sustain a zero long-run growth rate in resource prices. These results depend on whether firms use different extractive technologies or whether the structural break observed on resource prices is taken into account.

Keywords: Nonrenewable natural resources; Optimal extraction; Resource prices; Hotelling model; Panel data (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (11)

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DOI: 10.1007/s10640-015-9922-0

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