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Bubbles in Prices of Exhaustible Resources

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  • Boyan Jovanovic

Abstract

Aside from the equilibrium that Hotelling (1931) displayed, his model of non-renewable resources also contains a continuum of bubble equilibria. In all the equilibria the price of the resource rises at the rate of interest. In a bubble equilibrium, however, the consumption of the resource peters out, and a positive fraction of the original stock continues to be traded forever. And that may well be happening in the market for high-end Bordeaux wines.

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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 122247000000001414.

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Date of creation: 24 Aug 2007
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Handle: RePEc:cla:levarc:122247000000001414

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  1. Stephen F. Le Roy, 2004. "Rational Exuberance," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 783-804, September.
  2. Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
  3. Manuel S. Santos & Michael Woodford, 1997. "Rational Asset Pricing Bubbles," Econometrica, Econometric Society, vol. 65(1), pages 19-58, January.
  4. Deaton, Angus & Laroque, Guy, 1992. "On the Behaviour of Commodity Prices," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 1-23, January.
  5. Orley Ashenfelter & Kathryn Graddy, 2003. "Auctions and the Price of Art," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 763-787, September.
  6. Sargent, Thomas J. & Wallace, Meil, 1983. "A model of commodity money," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 163-187.
  7. Champ,Bruce & Freeman,Scott & Haslag,Joseph, 2011. "Modeling Monetary Economies," Cambridge Books, Cambridge University Press, number 9781107003491.
  8. Timmermann, Allan, 1994. "Present value models with feedback : Solutions, stability, bubbles, and some empirical evidence," Journal of Economic Dynamics and Control, Elsevier, vol. 18(6), pages 1093-1119, November.
  9. Benjamin J. Burton & Joyce P. Jacobsen, 1999. "Measuring Returns on Investments in Collectibles," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 193-212, Fall.
  10. Dasgupta,P. S. & Heal,G. M., 1985. "Economic Theory and Exhaustible Resources," Cambridge Books, Cambridge University Press, number 9780521297615.
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Cited by:
  1. Benjamin Eden, 2011. "Living with a Monetary System infected by Bubbles," Vanderbilt University Department of Economics Working Papers 1119, Vanderbilt University Department of Economics.
  2. Rolf Golombek & Alfonso A. Irarrazabal & Lin Ma, 2013. "OPEC's Market Power: An Empirical Dominant Firm Model for the Oil Market," CESifo Working Paper Series 4512, CESifo Group Munich.
  3. Arce, Oscar & López-Salido, J David, 2008. "Housing Bubbles," CEPR Discussion Papers 6932, C.E.P.R. Discussion Papers.
  4. Jie Zheng, 2008. "Strong Bubbles and Common Expected Bubbles in a Finite Horizon Model," Levine's Working Paper Archive 814577000000000038, David K. Levine.
  5. Dimson, Elroy & Spaenjers, Christophe, 2011. "Ex post: The investment performance of collectible stamps," Journal of Financial Economics, Elsevier, vol. 100(2), pages 443-458, May.
  6. Benjamin Eden, 2012. "Does a low interest rate support private bubbles?," Vanderbilt University Department of Economics Working Papers 12-00010, Vanderbilt University Department of Economics.
  7. repec:van:wpaper:vuecon-sub-12-00019 is not listed on IDEAS
  8. James D. Hamilton, 2008. "Understanding Crude Oil Prices," NBER Working Papers 14492, National Bureau of Economic Research, Inc.
  9. Ricardo J. Caballero & Emmanuel Farhi & Pierre-Olivier Gourinchas, 2008. "Financial Crash, Commodity Prices and Global Imbalances," NBER Working Papers 14521, National Bureau of Economic Research, Inc.
  10. Ing-Haw Cheng & Wei Xiong, 2013. "The Financialization of Commodity Markets," NBER Working Papers 19642, National Bureau of Economic Research, Inc.
  11. Dimson, Elroy & Rousseau, Peter L. & Spaenjers, Christophe, 2013. "The Price of Wine," Les Cahiers de Recherche 1019, HEC Paris.
  12. Strand, Jon, 2010. "Optimal fossil-fuel taxation with backstop technologies and tenure risk," Energy Economics, Elsevier, vol. 32(2), pages 418-422, March.
  13. Spaenjers, C., 2011. "Essays in alternative investments," Open Access publications from Tilburg University urn:nbn:nl:ui:12-4944288, Tilburg University.
  14. Roberto Piazza, . "Growth and Crisis, Unavoidable Connection?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.
  15. Ormos, Mihály & Erdős, Péter, 2011. "Borok mint alternatív befektetési lehetőségek
    [Wines as an alternative investment]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(2), pages 158-172.

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