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Price, scarcity rent, and a modified r per cent rule for non-renewable resources

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  • John Livernois
  • Patrick Martin

Abstract

Since Hotelling's seminal paper on the optimal depletion of exhaustible resources, much has been published; yet confusion remains about whether scarcity rent and price increase or decrease as a resource is depleted when costs tend to rise with depletion. We show that Hotelling's fundamental results of rising scarcity rent and price paths are sustained and that the path of scarcity rent converges on the per cent rule, provided the objective function is concave. Predictions of non-monotonic or declining scarcity rent paths are due to implicit assumptions that lead to a non-concave objective function. We identify the sources of these non-concavities.

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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 34 (2001)
Issue (Month): 3 (August)
Pages: 827-845

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Handle: RePEc:cje:issued:v:34:y:2001:i:3:p:827-845

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Cited by:
  1. Livernois, J. & Thille, H. & Zhang, X., 2003. "A Test of the Hotelling Rule Using Old-Growth Timber Data," Working Papers 2003-4, University of Guelph, Department of Economics and Finance.
  2. Ujjayant Chakravorty & Bertrand Magne & Michel Moreaux, 2006. "A Hotelling model with a ceiling on the stock of pollution," Working Papers 25547, Institut National de la Recherche Agronomique, France.
  3. Chakravorty, Ujjayant & Magné, Bertrand & Moreaux, Michel, 2003. "From Coal to Clean Energy : Hotelling with a Limit on the Stock of Externalities," IDEI Working Papers 229, Institut d'Économie Industrielle (IDEI), Toulouse.
  4. van Veldhuizen, Roel & Sonnemans, Joep, 2014. "Nonrenewable resources, strategic behavior and the hotelling rule: An experiment," Discussion Papers, Research Unit: Market Behavior SP II 2014-203, Social Science Research Center Berlin (WZB).
  5. John Hartwick & Andrei Bazhanov & Zhen Song, 2007. "Declining Exhaustible Resource Rent with Small, Distinct Extractive Firms," Working Papers 1139, Queen's University, Department of Economics.
  6. Alain Jean-Marie & Michel Moreaux & Mabel Tidball, 2011. "Carbon sequestration in leaky reservoirs," Post-Print hal-00863230, HAL.
  7. Frederick van der Ploeg & Cees Withagen, 2011. "Optimal Carbon Tax with a Dirty Backstop - Oil, Coal, or Renewables?," CESifo Working Paper Series 3334, CESifo Group Munich.
  8. Frederick Van der Ploeg & Cees A. Withagen, 2011. "Too Little Oil, Too Much Coal: Optimal Carbon Tax and when to Phase in Oil, Coal and Renewables," CESifo Working Paper Series 3526, CESifo Group Munich.
  9. John Hartwick & Andrei Bazhanov & Zhen Song, 2007. "The Extractive Firm's Cost Spillover Tax for the Extended Hotelling Model," Working Papers 1169, Queen's University, Department of Economics.

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