Adelman's Rule and the Petroleum Firm

Robert D. Cairns and Graham Davis

The Energy Journal, 2001, vol. 22, issue 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 one-half 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.

Keywords: Hotelling's Rule; oil industry; Exhaustible resources; Adelman's Rule; oil field valuation (search for similar items in EconPapers)
Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:sae:enejou:v:22:y:2001:i:3:p:31-54

DOI: 10.5547/ISSN0195-6574-EJ-Vol22-No3-2

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