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The Hotelling Principle: Autobahn or Cul de Sac?


  • G. C. Watkins


The economics of relations between prices and resource stocks has been dominated by the Hotelling Principle. But seemingly little attention has been given to the Principle by the oil and gas industry itself. In this paper the Principle is appraised, some new empirical results based on the value of oil and gas reserves sales are introduced, models which relax more of the Hotelling assumptions are reviewed, and the industry milieu in the context of a Hotelling Style framework is discussed. The Principle is seen as affording fundamental theoretical insights, but is not found to cope well with industry realities.

Suggested Citation

  • G. C. Watkins, 1992. "The Hotelling Principle: Autobahn or Cul de Sac?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 1-24.
  • Handle: RePEc:aen:journl:1992v13-01-a01

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    References listed on IDEAS

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    Cited by:

    1. Robert Bradley, 2007. "Resourceship: An Austrian theory of mineral resources," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 20(1), pages 63-90, March.
    2. Robert K. Kaufmann, 2014. "The End of Cheap Oil: Economic, Social, and Political Change in the US and Former Soviet Union," Energies, MDPI, Open Access Journal, vol. 7(10), pages 1-17, September.
    3. Reynolds, Douglas B. & Baek, Jungho, 2012. "Much ado about Hotelling: Beware the ides of Hubbert," Energy Economics, Elsevier, vol. 34(1), pages 162-170.
    4. Smith, James L., 2012. "On the portents of peak oil (and other indicators of resource scarcity)," Energy Policy, Elsevier, vol. 44(C), pages 68-78.
    5. Reynolds, Douglas B., 1999. "The mineral economy: how prices and costs can falsely signal decreasing scarcity," Ecological Economics, Elsevier, vol. 31(1), pages 155-166, October.
    6. repec:bla:acctfi:v:57:y:2017:i:2:p:511-531 is not listed on IDEAS
    7. Thompson, Andrew C., 2001. "The Hotelling Principle, backwardation of futures prices and the values of developed petroleum reserves -- the production constraint hypothesis," Resource and Energy Economics, Elsevier, vol. 23(2), pages 133-156, April.
    8. Karanfil, Fatih & Omgba, Luc Désiré, 2017. "Reconsidering the scarcity factor in the dynamics of oil markets: An empirical investigation of the (mis)measurement of oil reserves," Energy, Elsevier, vol. 137(C), pages 209-218.
    9. Kaufmann, Robert K. & Shiers, Laura D., 2008. "Alternatives to conventional crude oil: When, how quickly, and market driven?," Ecological Economics, Elsevier, vol. 67(3), pages 405-411, October.
    10. Reynolds, Douglas B., 2013. "Uncertainty in exhaustible natural resource economics: The irreversible sunk costs of Hotelling," Resources Policy, Elsevier, vol. 38(4), pages 532-541.
    11. Zaklan, Aleksandar & Abrell, Jan & Neumann, Anne, 2016. "Stationarity changes in long-run energy commodity prices," Energy Economics, Elsevier, vol. 59(C), pages 96-103.
    12. Bentley, Roger & Bentley, Yongmei, 2015. "Explaining the price of oil 1971–2014 : The need to use reliable data on oil discovery and to account for ‘mid-point’ peak," Energy Policy, Elsevier, vol. 86(C), pages 880-890.
    13. Watkins, G. C. & Streifel, Shane, 1997. "World crude oil resources : evidence from estimating supply functions for 41 countries," Policy Research Working Paper Series 1756, The World Bank.
    14. Davis, Graham A. & Moore, David J., 1998. "Valuing mineral reserves when capacity constrains production," Economics Letters, Elsevier, vol. 60(1), pages 121-125, July.
    15. Barbiroli, Giancarlo & Focacci, Antonio, 1999. "An appropriate mechanism of fuels pricing for sustainable development," Energy Policy, Elsevier, vol. 27(11), pages 625-636, October.
    16. Chavez-Rodriguez, Mauro F. & Szklo, Alexandre & de Lucena, Andre Frossard Pereira, 2015. "Analysis of past and future oil production in Peru under a Hubbert approach," Energy Policy, Elsevier, vol. 77(C), pages 140-151.
    17. Watkins, G.C., 2006. "Oil scarcity: What have the past three decades revealed?," Energy Policy, Elsevier, vol. 34(5), pages 508-514, March.
    18. Greene, David L & Jones, Donald W & Leiby, Paul N, 1998. "The outlook for US oil dependence," Energy Policy, Elsevier, vol. 26(1), pages 55-69, January.
    19. Jeffrey A. Krautkraemer, 1998. "Nonrenewable Resource Scarcity," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 2065-2107, December.
    20. Kaufmann, Robert K., 1995. "A model of the world oil market for project LINK Integrating economics, geology and politics," Economic Modelling, Elsevier, vol. 12(2), pages 165-178, April.
    21. Watkins, G. C. & Streifel, Shane S., 1998. "World crude oil supply: Evidence from estimating supply functions by country," Journal of Energy Finance & Development, Elsevier, vol. 3(1), pages 23-48.
    22. Lynch, Michael C., 2002. "Forecasting oil supply: theory and practice," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(2), pages 373-389.
    23. Jakobsson, Kristofer & Söderbergh, Bengt & Snowden, Simon & Li, Chuan-Zhong & Aleklett, Kjell, 2012. "Oil exploration and perceptions of scarcity: The fallacy of early success," Energy Economics, Elsevier, vol. 34(4), pages 1226-1233.

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    JEL classification:

    • F0 - International Economics - - General


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