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Adjusting Prices for Volume: a test of the Hotelling valuation principle

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  • Berck, Peter

Abstract

This paper tests the hypothesis that the net of extraction cost price of a natural resource does not change with volume. The hypothesis is shown to he a consequence of Hotelling's theory. The tests are performed on equations estimated by a nonparametric regression (ACE), and we show that the usual least squares estimation techniques are not general enough to successfully perform the test. The test rejects the pure form of the Hotelling theory and shows that it is necessary to adjust sale prices for volume sold.

Suggested Citation

  • Berck, Peter, 1988. "Adjusting Prices for Volume: a test of the Hotelling valuation principle," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt4g53g5sz, Department of Agricultural & Resource Economics, UC Berkeley.
    • Handle: RePEc:cdl:agrebk:qt4g53g5sz
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    References listed on IDEAS

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    1. Miller, Merton H & Upton, Charles W, 1985. "A Test of the Hotelling Valuation Principle," Journal of Political Economy, University of Chicago Press, vol. 93(1), pages 1-25, February.
    2. Geoffrey Heal & Michael Barrow, 1980. "The Relationship between Interest Rates and Metal Price Movements," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 47(1), pages 161-181.
    3. Peter Berck & Thomas Bible, 1985. "Wood products futures markets and the reservation price of timber," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 5(3), pages 311-316, September.
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