Bubbles in Prices of Exhaustible Resources
Aside from the equilibrium that Hotelling (1931) displayed, his model of non-renewable resources also contains a continuum of bubble equilibria. In all the equilibria the price of the resource rises at the rate of interest. In a bubble equilibrium, however, the consumption of the resource peters out, and a positive fraction of the original stock continues to be traded forever. And that may well be happening in the market for high-end Bordeaux wines.
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"Rational asset pricing bubbles,"
UC3M Working papers. Economics
3913, Universidad Carlos III de Madrid. Departamento de Economía.
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- Harold Hotelling, 1931. "The Economics of Exhaustible Resources," Journal of Political Economy, University of Chicago Press, vol. 39, pages 137-137.
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