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Natural resource economics under the rule of Hotelling

  • Gérard Gaudet

Natural resource stocks held in situ are physical assets. Equilibrium in the assets market requires that their rates of return be such that their owners are just willing to hold on to them rather than invest elsewhere. I discuss a number of factors relating to the evolution of extraction costs, to the durability of the resource, to market structure, and to uncertainty, that are important in correctly characterizing the rate of return on holding exhaustible natural resource stocks. The emphasis is put on how those factors can potentially help bridge the gap between the basic Hotelling's rule of natural resource exploitation and the historical behaviour of the flow price of a number of resources. I also highlight some theoretical and empirical issues that need further attention.

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

Volume (Year): 40 (2007)
Issue (Month): 4 (November)
Pages: 1033-1059

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Handle: RePEc:cje:issued:v:40:y:2007:i:4:p:1033-1059
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