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The Hotelling Rule in Non-Renewable Resource Economics: A Reassessment

Author

Listed:
  • Roberto P. Ferreira da Cunha

    (Berkeley Research Group, LLC)

  • Antoine Missemer

    (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École des Ponts ParisTech - Université Paris-Saclay - CNRS - Centre National de la Recherche Scientifique)

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 On the basis of Hotelling's unpublished archival material, this paper revisits the place given to the Hotelling rule in non‐renewable resource economics.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.

Suggested Citation

  • Roberto P. Ferreira da Cunha & Antoine Missemer, 2020. "The Hotelling Rule in Non-Renewable Resource Economics: A Reassessment," Post-Print hal-03216483, HAL.
  • Handle: RePEc:hal:journl:hal-03216483
    DOI: 10.1111/caje.12444
    Note: View the original document on HAL open archive server: https://enpc.hal.science/hal-03216483
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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).
    2. Ivar Ekeland & Wolfram Schlenker & Peter Tankov & Brian Wright, 2022. "Optimal Exploration of an Exhaustible Resource with Stochastic Discoveries," Papers 2203.01614, arXiv.org.
    3. Terreaux, Jean-Philippe, 2022. "The rise and fall of La Graufesenque: The fate of development based on a non-renewable resource," Ecological Economics, Elsevier, vol. 196(C).
    4. Konrad, Kai A. & Thum, Marcel, 2023. "Elusive effects of export embargoes for fossil energy resources," Energy Economics, Elsevier, vol. 117(C).
    5. C. Cassen & Antoine Missemer, 2020. "Structuring Environmental and Development Economics in France: The CIRED Case (1968-1986) [La structuration de l'économie de l'environnement et du développement en France : le cas du CIRED (1968-1986)," Post-Print halshs-02548876, HAL.
    6. Courage Mlambo, 2022. "Non-Renewable Resources and Sustainable Resource Extraction: An Empirical Test of the Hotelling Rule’s Significance to Gold Extraction in South Africa," Sustainability, MDPI, vol. 14(17), pages 1-17, August.
    7. Kai A. Konrad & Marcel Thum, 2022. "Elusive Effects of Oil and Gas Export Embargoes," Working Papers tax-mpg-rps-2022-05, Max Planck Institute for Tax Law and Public Finance.
    8. Vicknair, David & Tansey, Michael & O'Brien, Thomas E., 2022. "Measuring fossil fuel reserves: A simulation and review of the U.S. Securities and Exchange Commission approach," Resources Policy, Elsevier, vol. 79(C).

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