Does Price of an Essential Non-Renewable Resource Necessarily Grow?
In: Proceedings of the Conference on Globalization and Its Discontents
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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"The Hotelling's Rule Revisited in a Dynamic General Equilibrium Model,"
FNU-44, Research unit Sustainability and Global Change, Hamburg University, revised Jun 2004.
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