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Does Price of an Essential Non-Renewable Resource Necessarily Grow?

In: Proceedings of the Conference on Globalization and Its Discontents

  • Ý. Hakan Yetkiner

    (Izmir University of Economics)

Dasgupta and Heal’s 1974 paper extends Hotelling’s 1931 partial equilibrium model into a dynamic general equilibrium model. Both papers show that nonrenewable resource prices do grow exponentially, which is called the Hotelling’s rule in the literature. Empirical evidence on the contrary shows that most nonrenewable prices are constant in the long-run. The controversy between theory and empirical regulatory perhaps may be called the Hotelling’s Paradox. This paper, based on Dasgupta and Heal (1974), shows that nonrenewable dependent growth does not always generate skyrocketing resource prices. In particular, this paper shows that resource price converges to a constant under Cobb-Douglas technology and that the model economy dies out under a particular value of elasticity of marginal utility.

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This chapter was published in:
  • Oguz Esen & Ayla Ogus (ed.), 2007. "Proceedings of the International Conference on Globalization and Its Discontents," Proceedings of the IUE-SUNY Cortland Conference in Economics, Izmir University of Economics, number 2007, 08.
  • This item is provided by Izmir University of Economics in its series Papers of the Annual IUE-SUNY Cortland Conference in Economics with number 200709.
    Handle: RePEc:izm:prcdng:200709
    Contact details of provider: Fax: (90) 232 279 2626
    Web page: http://eco.ieu.edu.tr

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    1. Stiglitz, Joseph E, 1976. "Monopoly and the Rate of Extraction of Exhaustible Resources," American Economic Review, American Economic Association, vol. 66(4), pages 655-61, September.
    2. Peterson, Frederick M & Fisher, Anthony C, 1977. "The Exploitation of Extractive Resources: A Survey," Economic Journal, Royal Economic Society, vol. 87(348), pages 681-721, December.
    3. Beatriz Gaitan de Soto & Richard S.J. Tol & I. Hakan Yetkiner, 2004. "The Hotelling's Rule Revisited in a Dynamic General Equilibrium Model," Working Papers FNU-44, Research unit Sustainability and Global Change, Hamburg University, revised Jun 2004.
    4. Richard L. Gordon, 1967. "A Reinterpretation of the Pure Theory of Exhaustion," Journal of Political Economy, University of Chicago Press, vol. 75, pages 274.
    5. Jeffrey A. Krautkraemer, 1998. "Nonrenewable Resource Scarcity," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 2065-2107, December.
    6. Sweeney, James L, 1977. "Economics of Depletable Resources: Market Forces and Intertemporal Bias," Review of Economic Studies, Wiley Blackwell, vol. 44(1), pages 125-41, February.
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