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On the Theory of Exhaustible Resources: Ricardo vs. Hotelling

Heinz Kurz () and Neri Salvadori ()

ISER Discussion Paper from Institute of Social and Economic Research, Osaka University

Abstract: The paper compares, and eventually combines, the approaches of Harold Hotelling and David Ricardo to the theory of exhaustible resources. It is argued that Hotelling and Ricardo had in mind worlds that differ in important respects. According to Ricardo the exploitation of deposits of resources is typically subject to capacity constraints which necessitate the working of differently fertile mines side by side and which imply that the classical theory of differential rent applies. Hotelling on the other hand assumed that the amount of the resource that can be extracted in a given period of time is only constrained by the amount of it left over from the preceding period; his emphasis was therefore on royalties and not differential rent. A model is then elaborated which brings together the insights of both authors and allows one to trace relative prices and income distribution over time.

Date: 2009-09
New Economics Papers: this item is included in nep-ene, nep-env and nep-res
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