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Testing the Assumptions and Predictions of the Hotelling Model

Author

Listed:
  • Calvin Atewamba

    () (Institute for Natural Resources in Africa, United Nations University)

  • Bruno Nkuiya

    () (Bren School of Environmental Science and Management, University of California Santa Barbara)

Abstract

In this paper, we empirically examine whether the assumptions and predictions of the Hotelling model are consistent with patterns observed in data. We consider nonlinear functional forms for the extraction cost and resource demand to develop an empirical Hotelling model with technological progress and stock dependent extraction costs. Using panel data on fourteen nonrenewable natural resources to estimate this empirical Hotelling model, we get qualitatively different results as compared to the related literature. We find evidence of stock-dependent extraction costs for most resources. There is no evidence against the linearity of the optimal extraction rate in the resource stock for almost all resources studied. Furthermore, the Hotelling model may sustain a zero long-run growth rate in resource prices. These results depend on whether firms use different extractive technologies or whether the structural break observed on resource prices is taken into account.

Suggested Citation

  • Calvin Atewamba & Bruno Nkuiya, 2017. "Testing the Assumptions and Predictions of the Hotelling Model," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 66(1), pages 169-203, January.
  • Handle: RePEc:kap:enreec:v:66:y:2017:i:1:d:10.1007_s10640-015-9922-0
    DOI: 10.1007/s10640-015-9922-0
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    References listed on IDEAS

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    Cited by:

    1. Christopher Costello & Bruno Nkuiya & Nicolas Querou, 2017. "Extracting spatial resources under possible regime shift," Working Papers hal-01615939, HAL.
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    4. Gregor Schwerhoff & Ottmar Edenhofer & Marc Fleurbaey, 2020. "Taxation Of Economic Rents," Journal of Economic Surveys, Wiley Blackwell, vol. 34(2), pages 398-423, April.

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