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The Evolution of Natural Resource Prices under Stochastic Investment Opportunities: An Intertemporal Asset-Pricing Approach

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  • Gaudet, Gerard
  • Khadr, Ali M

Abstract

The authors consider the competitive equilibrium of an economy with technological uncertainty in the production of a composite good and in the extraction of a nonrenewable natural resource. The familiar Hotelling-type rule takes the form of the intertemporal asset-pricing equation of portfolio theory. It characterizes the evolution of the resource price. In its so-called consumption-beta formulation, it predicts that the expected excess return to holding the resource in the ground is proportional to the covariance between the return to holding the resource and the rate of change of per capita consumption. This suggests a framework for testing the Hotelling rule. Copyright 1991 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Gaudet, Gerard & Khadr, Ali M, 1991. "The Evolution of Natural Resource Prices under Stochastic Investment Opportunities: An Intertemporal Asset-Pricing Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(2), pages 441-455, May.
  • Handle: RePEc:ier:iecrev:v:32:y:1991:i:2:p:441-55
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    Cited by:

    1. Brian R. Copeland & M. Scott Taylor, 2017. "Environmental and resource economics: A Canadian retrospective," Canadian Journal of Economics, Canadian Economics Association, vol. 50(5), pages 1381-1413, December.
    2. van den Bremer, Ton & van der Ploeg, Frederick & Wills, Samuel, 2016. "The Elephant In The Ground: Managing Oil And Sovereign Wealth," European Economic Review, Elsevier, vol. 82(C), pages 113-131.
    3. Kakeu, Johnson & Nguimkeu, Pierre, 2017. "Habit formation and exhaustible resource risk-pricing," Energy Economics, Elsevier, vol. 64(C), pages 1-12.
    4. John Livernois & Henry Thille & Xianqiang Zhang, 2006. "A test of the Hotelling rule using old‐growth timber data," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 39(1), pages 163-186, February.
    5. Gaudet, Gérard, 1990. "Commentaire," L'Actualité Economique, Société Canadienne de Science Economique, vol. 66(4), pages 461-466, décembre.
    6. Gérard Gaudet, 2007. "Natural resource economics under the rule of Hotelling," Canadian Journal of Economics, Canadian Economics Association, vol. 40(4), pages 1033-1059, November.
    7. Rick van der Ploeg, 2014. "Guidelines for exploiting natural resource wealth," Oxford Review of Economic Policy, Oxford University Press, vol. 30(1), pages 145-169.

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