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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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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Yoann Verger, 2015. "Sraffa and the environment," Working Papers hal-01186009, HAL.
    2. Huppmann, Daniel, 2013. "Endogenous shifts in OPEC market power - A Stackelberg oligopoly with fringe," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79758, Verein für Socialpolitik / German Economic Association.
    3. van der Meijden, Gerard & van der Ploeg, Frederick & Withagen, Cees, 2015. "International capital markets, oil producers and the Green Paradox," European Economic Review, Elsevier, vol. 76(C), pages 275-297.
    4. Yoann Verger, 2015. "A Critique of Attempts to Introduce Hotelling's rule in Sraffa's Theory," Working Papers hal-01193072, HAL.
    5. Niko Jaakkola, 2013. "Putting OPEC Out of Business," OxCarre Working Papers 099, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    6. Haftendorn, C. & Kemfert, C. & Holz, F., 2012. "What about coal? Interactions between climate policies and the global steam coal market until 2030," Energy Policy, Elsevier, vol. 48(C), pages 274-283.
    7. Schade, Jutta & Wallström, Peter & Olofsson, Thomas & Lagerqvist, Ove, 2013. "A comparative study of the design and construction process of energy efficient buildings in Germany and Sweden," Energy Policy, Elsevier, vol. 58(C), pages 28-37.
    8. Hart, Rob, 2016. "Non-renewable resources in the long run," Journal of Economic Dynamics and Control, Elsevier, vol. 71(C), pages 1-20.
    9. Goldemberg, José & Schaeffer, Roberto & Szklo, Alexandre & Lucchesi, Rodrigo, 2014. "Oil and natural gas prospects in South America: Can the petroleum industry pave the way for renewables in Brazil?," Energy Policy, Elsevier, vol. 64(C), pages 58-70.
    10. Spiro, Daniel, 2014. "Resource prices and planning horizons," Journal of Economic Dynamics and Control, Elsevier, vol. 48(C), pages 159-175.
    11. Martin Stuermer & Gregor Schwerhoff, 2013. "Technological change in resource extraction and endogenous growth," Bonn Econ Discussion Papers bgse12_2013, University of Bonn, Germany.
    12. Justin Leroux & Daniel Spiro, 2017. "Leading the Unwilling: Unilateral Strategies to Prevent Arctic Oil Exploration," CESifo Working Paper Series 6629, CESifo Group Munich.
    13. Olovsson, Conny, 2016. "Oil prices in a real-businesscycle model with precautionary demand for oil," Working Paper Series 332, Sveriges Riksbank (Central Bank of Sweden).
    14. Lund, Diderik & Nymoen, Ragnar, 2013. "Comparative statics for real options on oil: What stylized facts to use?," Memorandum 14/2013, Oslo University, Department of Economics.
    15. Stuermer, Martin & Schwerhoff, Gregor, 2015. "Non-renewable resources, extraction technology, and endogenous growth," Working Papers 1506, Federal Reserve Bank of Dallas.
    16. Orlov, Anton, 2016. "Effects of higher domestic gas prices in Russia on the European gas market: A game theoretical Hotelling model," Applied Energy, Elsevier, vol. 164(C), pages 188-199.

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