Explaining Current Exhaustible Resource Prices with CAPM

John Hartwick and David Yeung

Working Paper from Economics Department, Queen's University

Abstract: A group of firms issuing equity claims on its capital stock have all capital as an exhaustible resource. We introduce such firms into the set of n firms who have issued equities in the Capital Asset Pricing Model (CAPM) and observe how the interaction of demand for oil by users and demand for claims by asset traders under uncertainty yields an extraction program for exhaustible stocks. We compare the equilibrium condition in this model with the Hotelling Rule. We also observe how exhaustibility of a firm's capital stock spills over into the familiar asset pricing rules for non-depleting stock in CAPM.

Pages: 17 pages
Date: 1988
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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:726

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