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Nonrenewable resources, strategic behavior and the hotelling rule: An experiment

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  • van Veldhuizen, Roel
  • Sonnemans, Joep

Abstract

This study uses the methods of experimental economics to investigate possible reasons for the lack of empirical support for the Hotelling rule for nonrenewable resources. We argue that as long as resource stocks are large enough, producers may choose to (partially) ignore the dynamic component of their production decision, shifting production to the present and focusing more on strategic behavior. We experimentally vary stock size in a nonrenewable resource duopoly setting and find that producers with large stocks indeed pay significantly less attention to variables related to dynamic optimization, and overproduce relative to the Hotelling rule.

Suggested Citation

  • van Veldhuizen, Roel & Sonnemans, Joep, 2014. "Nonrenewable resources, strategic behavior and the hotelling rule: An experiment," Discussion Papers, Research Unit: Market Behavior SP II 2014-203, WZB Berlin Social Science Center.
    • Handle: RePEc:zbw:wzbmbh:spii2014203
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    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.
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    More about this item

    Keywords

    laboratory experiment; nonrenewable resources; Hotelling rule; dynamic oligopoly;
    All these keywords.

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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