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Much ado about Hotelling: Beware the ides of Hubbert

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  • Reynolds, Douglas B.
  • Baek, Jungho

Abstract

Much economic literature analyzes the Hotelling principal. Little economic literature analyzes the Hubbert curve although much controversy surrounds it. This difference in emphasis by economists needs to be reconsidered critically, and towards that end, we attempt to look at both concepts simultaneously. We test whether a simple Hubbert curve model is a significant determinant of world oil price changes and whether one of the main determinants of the Hotelling principle—the discount rate—also affects world oil prices. An autoregressive distributed lag (ARDL) bound testing approach is used to examine the effects of a Hubbert index variable and a Hotelling discount rate variable on the world wide price of oil. Results show the discount rate, the most important Hotelling variable, has little effect on oil prices, but that the Hubbert curve model does show a large effect on oil prices. Oil is a non-renewable natural resource par excellence, yet the results suggest that the Hotelling principle is not an important determinant for oil prices, yet the Hubbert curve and the theory surrounding the Hubbert curve is an important determinant of oil prices.

Suggested Citation

  • Reynolds, Douglas B. & Baek, Jungho, 2012. "Much ado about Hotelling: Beware the ides of Hubbert," Energy Economics, Elsevier, vol. 34(1), pages 162-170.
  • Handle: RePEc:eee:eneeco:v:34:y:2012:i:1:p:162-170
    DOI: 10.1016/j.eneco.2011.04.010
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    1. Brecha, Robert J., 2012. "Logistic curves, extraction costs and effective peak oil," Energy Policy, Elsevier, vol. 51(C), pages 586-597.
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    3. Waisman, Henri & Rozenberg, Julie & Sassi, Olivier & Hourcade, Jean-Charles, 2012. "Peak Oil profiles through the lens of a general equilibrium assessment," Energy Policy, Elsevier, vol. 48(C), pages 744-753.
    4. Höök, Mikael & Tang, Xu, 2013. "Depletion of fossil fuels and anthropogenic climate change—A review," Energy Policy, Elsevier, vol. 52(C), pages 797-809.
    5. Pål Boug & Ådne Cappelen & Anders Rygh Swensen, 2016. "Modelling OPEC behaviour. Theory and evidence," Discussion Papers 843, Statistics Norway, Research Department.
    6. Mercure, Jean-François & Salas, Pablo, 2013. "On the global economic potentials and marginal costs of non-renewable resources and the price of energy commodities," Energy Policy, Elsevier, vol. 63(C), pages 469-483.
    7. Illig, Aude & Schindler, Ian, 2016. "Oil Extraction and Price Dynamics," TSE Working Papers 16-701, Toulouse School of Economics (TSE).
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    12. Lindholt, Lars & Glomsrød, Solveig, 2012. "The Arctic: No big bonanza for the global petroleum industry," Energy Economics, Elsevier, vol. 34(5), pages 1465-1474.

    More about this item

    Keywords

    Hubbert curve; Hotelling principle; Oil production; Resource scarcity;

    JEL classification:

    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • D9 - Microeconomics - - Micro-Based Behavioral Economics

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