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The elephant in Hotelling's room

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  • Hart, Rob
  • Spiro, Daniel

Abstract

This paper questions the assumption, commonly used in theoretical and policy research, that scarcity rents make up a large proportion of market prices for oil and coal. We show that the empirical literature, simple calculations of historical and future scarcity rent shares, and possible theoretical explanations all imply the same overall conclusions: that scarcity rents seem to have been marginal or non-existent historically; that they almost certainly do not dominate fossil resource prices today; and that there will be other factors shaping the prices in the upcoming decades. We therefore argue that using the scarcity rent as the main or only basis for policy or for explaining empirical outcomes is ill-advised.

Suggested Citation

  • Hart, Rob & Spiro, Daniel, 2011. "The elephant in Hotelling's room," Energy Policy, Elsevier, vol. 39(12), pages 7834-7838.
    • Handle: RePEc:eee:enepol:v:39:y:2011:i:12:p:7834-7838
    DOI: 10.1016/j.enpol.2011.09.029
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