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Much ado about Hotelling: Beware the ides of Hubbert

  • Reynolds, Douglas B.
  • Baek, Jungho

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.

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Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 34 (2012)
Issue (Month): 1 ()
Pages: 162-170

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Handle: RePEc:eee:eneeco:v:34:y:2012:i:1:p:162-170
Contact details of provider: Web page: http://www.elsevier.com/locate/eneco

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