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Explaining Current Exhaustible Resource Prices with CAPM

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  • John Hartwick
  • David Yeung

Abstract

A group of firms issuing equity claims on its capital stock have all capital as an exhaustible resource. We introduce such firms into the set of n firms who have issued equities in the Capital Asset Pricing Model (CAPM) and observe how the interaction of demand for oil by users and demand for claims by asset traders under uncertainty yields an extraction program for exhaustible stocks. We compare the equilibrium condition in this model with the Hotelling Rule. We also observe how exhaustibility of a firm's capital stock spills over into the familiar asset pricing rules for non-depleting stock in CAPM.

Suggested Citation

  • John Hartwick & David Yeung, 1988. "Explaining Current Exhaustible Resource Prices with CAPM," Working Paper 726, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:726
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