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A test of the Hotelling rule using old-growth timber data

  • John Livernois
  • Henry Thille
  • Xianqiang Zhang

The paper tests Hotelling's prediction that scarcity rent for a non-renewable resource will rise at the rate of discount in a market equilibrium. We perform the test using data for old-growth timber, a resource that is effectively non-renewable. In contrast to previous studies, for this resource a measure of scarcity rent is directly observable in the form of stumpage price bids in timber auctions. We construct a model that allows for replanting and captures the institutional framework of the western U.S. timber market. The modified Hotelling rule that we derive is not rejected in several of our specifications.

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Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 39 (2006)
Issue (Month): 1 (February)
Pages: 163-186

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Handle: RePEc:cje:issued:v:39:y:2006:i:1:p:163-186
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  19. Cees Withagen, 1998. "Untested Hypotheses in Non-Renewable Resource Economics," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 11(3), pages 623-634, April.
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  22. Miller, Merton H & Upton, Charles W, 1985. " The Pricing of Oil and Gas: Some Further Results," Journal of Finance, American Finance Association, vol. 40(3), pages 1009-18, July.
  23. John Livernois & Patrick Martin, 2001. "Price, scarcity rent, and a modified r per cent rule for non-renewable resources," Canadian Journal of Economics, Canadian Economics Association, vol. 34(3), pages 827-845, August.
  24. Cairns, Robert D., 1986. "More on depletion in the nickel industry," Journal of Environmental Economics and Management, Elsevier, vol. 13(1), pages 93-98, March.
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