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The Hotelling rule in non‐renewable resource economics: A reassessment

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  • Roberto Ferreira da Cunha
  • Antoine Missemer

Abstract

Harold Hotelling's 1931 contribution is known for providing a basic principle—the Hotelling rule—to the economics of non‐renewable resources. Nearly 90 years later, empirical tests conclude the rule lacks empirical validity, requiring strong amendments to describe the long‐term, aggregate behaviour of its target object. On the basis of Hotelling's unpublished archival material, this paper revisits the place given to the Hotelling rule in non‐renewable resource economics. Our reconstruction shows that Hotelling's 1931 paper has been misinterpreted: from the outset, the Hotelling rule was not valid for mineral resources. In contrast, the consideration of two inherent geological constraints, alongside exhaustibility, offered the opportunity for an alternative basic framework, capable to generate bell‐shaped and U‐shaped equilibrium trajectories for supplies and prices, respectively. Inspired by this unknown aspect of Hotelling's work brought to light by our archival investigation, we sketch this alternative basic model, enabling non‐renewable resource economics to circumvent the empirical shortfalls of the Hotelling rule. La règle de Hotelling en économie des ressources non‐renouvelables : un réexamen. Harold Hotelling est connu pour avoir élaboré en 1931 un principe fondamental de l’économie des ressources non‐renouvelables : la règle de Hotelling. Près de quatre‐vingt‐dix ans plus tard, la littérature indique que cette règle manque de validité empirique, requérant d’importants amendements pour rendre compte convenablement de la trajectoire de long‐terme de son objet d’étude. Sur la base de matériaux d’archives inédits, cet article réévalue la place de la règle de Hotelling dans le champ de l’économie des ressources non‐renouvelables. Nous montrons que l’article de 1931 a été mal interprété : dès le départ, la règle de Hotelling n’était pas adéquate pour les ressources minières. La prise en compte de deux contraintes géologiques essentielles, en parallèle de l’épuisement, pouvait au contraire permettre de bâtir un cadre d’analyse alternatif, capable de générer des trajectoires en cloche ou en U pour, respectivement, l’offre et les prix. Inspirés par cet aspect méconnu du travail de Hotelling mis en lumière par notre enquête archivistique, nous esquissons ce modèle alternatif, permettant à l’économie des ressources non‐renouvelables de contourner les lacunes empiriques de la règle de Hotelling.

Suggested Citation

  • Roberto Ferreira da Cunha & Antoine Missemer, 2020. "The Hotelling rule in non‐renewable resource economics: A reassessment," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(2), pages 800-820, May.
  • Handle: RePEc:wly:canjec:v:53:y:2020:i:2:p:800-820
    DOI: 10.1111/caje.12444
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    References listed on IDEAS

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    1. Missemer, Antoine & Nadaud, Franck, 2020. "Energy as a factor of production: Historical roots in the American institutionalist context," Energy Economics, Elsevier, vol. 86(C).

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