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Much ado about Hotelling: Beware the ides of Hubbert

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  • Reynolds, Douglas B.
  • Baek, Jungho

Abstract

Much economic literature analyzes the Hotelling principal. Little economic literature analyzes the Hubbert curve although much controversy surrounds it. This difference in emphasis by economists needs to be reconsidered critically, and towards that end, we attempt to look at both concepts simultaneously. We test whether a simple Hubbert curve model is a significant determinant of world oil price changes and whether one of the main determinants of the Hotelling principle—the discount rate—also affects world oil prices. An autoregressive distributed lag (ARDL) bound testing approach is used to examine the effects of a Hubbert index variable and a Hotelling discount rate variable on the world wide price of oil. Results show the discount rate, the most important Hotelling variable, has little effect on oil prices, but that the Hubbert curve model does show a large effect on oil prices. Oil is a non-renewable natural resource par excellence, yet the results suggest that the Hotelling principle is not an important determinant for oil prices, yet the Hubbert curve and the theory surrounding the Hubbert curve is an important determinant of oil prices.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 34 (2012)
Issue (Month): 1 ()
Pages: 162-170

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Handle: RePEc:eee:eneeco:v:34:y:2012:i:1:p:162-170

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Web page: http://www.elsevier.com/locate/eneco

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Keywords: Hubbert curve; Hotelling principle; Oil production; Resource scarcity;

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References

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Cited by:
  1. Goldemberg, José & Schaeffer, Roberto & Szklo, Alexandre & Lucchesi, Rodrigo, 2014. "Oil and natural gas prospects in South America: Can the petroleum industry pave the way for renewables in Brazil?," Energy Policy, Elsevier, vol. 64(C), pages 58-70.
  2. Fantazzini, Dean & Höök, Mikael & Angelantoni, André, 2011. "Global oil risks in the early 21st century," Energy Policy, Elsevier, vol. 39(12), pages 7865-7873.
  3. Mercure, Jean-François & Salas, Pablo, 2013. "On the global economic potentials and marginal costs of non-renewable resources and the price of energy commodities," Energy Policy, Elsevier, vol. 63(C), pages 469-483.
  4. Reynolds, Douglas B., 2014. "World oil production trend: Comparing Hubbert multi-cycle curves," Ecological Economics, Elsevier, vol. 98(C), pages 62-71.
  5. Lindholt, Lars & Glomsrød, Solveig, 2012. "The Arctic: No big bonanza for the global petroleum industry," Energy Economics, Elsevier, vol. 34(5), pages 1465-1474.

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