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The Hotelling Principle: Autobahn or Cul de Sac?

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  • G. C. Watkins
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    Abstract

    The economics of relations between prices and resource stocks has been dominated by the Hotelling Principle. But seemingly little attention has been given to the Principle by the oil and gas industry itself. In this paper the Principle is appraised, some new empirical results based on the value of oil and gas reserves sales are introduced, models which relax more of the Hotelling assumptions are reviewed, and the industry milieu in the context of a Hotelling Style framework is discussed. The Principle is seen as affording fundamental theoretical insights, but is not found to cope well with industry realities.

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    Bibliographic Info

    Article provided by International Association for Energy Economics in its journal The Energy Journal.

    Volume (Year): Volume 13 (1992)
    Issue (Month): Number 1 ()
    Pages: 1-24

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    Handle: RePEc:aen:journl:1992v13-01-a01

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    Cited by:
    1. Reynolds, Douglas B., 1999. "The mineral economy: how prices and costs can falsely signal decreasing scarcity," Ecological Economics, Elsevier, vol. 31(1), pages 155-166, October.
    2. Watkins, G.C., 2006. "Oil scarcity: What have the past three decades revealed?," Energy Policy, Elsevier, vol. 34(5), pages 508-514, March.
    3. Davis, Graham A. & Moore, David J., 1998. "Valuing mineral reserves when capacity constrains production," Economics Letters, Elsevier, vol. 60(1), pages 121-125, July.
    4. Lynch, Michael C., 2002. "Forecasting oil supply: theory and practice," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(2), pages 373-389.
    5. Jakobsson, Kristofer & Söderbergh, Bengt & Snowden, Simon & Li, Chuan-Zhong & Aleklett, Kjell, 2012. "Oil exploration and perceptions of scarcity: The fallacy of early success," Energy Economics, Elsevier, vol. 34(4), pages 1226-1233.
    6. Greene, David L & Jones, Donald W & Leiby, Paul N, 1998. "The outlook for US oil dependence," Energy Policy, Elsevier, vol. 26(1), pages 55-69, January.
    7. Barbiroli, Giancarlo & Focacci, Antonio, 1999. "An appropriate mechanism of fuels pricing for sustainable development," Energy Policy, Elsevier, vol. 27(11), pages 625-636, October.
    8. Watkins, G. C. & Streifel, Shane, 1997. "World crude oil resources : evidence from estimating supply functions for 41 countries," Policy Research Working Paper Series 1756, The World Bank.
    9. Watkins, G. C. & Streifel, Shane S., 1998. "World crude oil supply: Evidence from estimating supply functions by country," Journal of Energy Finance & Development, Elsevier, vol. 3(1), pages 23-48.
    10. Kaufmann, Robert K., 1995. "A model of the world oil market for project LINK Integrating economics, geology and politics," Economic Modelling, Elsevier, vol. 12(2), pages 165-178, April.
    11. Reynolds, Douglas B. & Baek, Jungho, 2012. "Much ado about Hotelling: Beware the ides of Hubbert," Energy Economics, Elsevier, vol. 34(1), pages 162-170.
    12. Jeffrey A. Krautkraemer, 1998. "Nonrenewable Resource Scarcity," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 2065-2107, December.
    13. Kaufmann, Robert K. & Shiers, Laura D., 2008. "Alternatives to conventional crude oil: When, how quickly, and market driven?," Ecological Economics, Elsevier, vol. 67(3), pages 405-411, October.
    14. Reynolds, Douglas B., 2013. "Uncertainty in exhaustible natural resource economics: The irreversible sunk costs of Hotelling," Resources Policy, Elsevier, vol. 38(4), pages 532-541.
    15. Robert Bradley, 2007. "Resourceship: An Austrian theory of mineral resources," The Review of Austrian Economics, Springer, vol. 20(1), pages 63-90, March.

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