Review of Environmental Economics and Policy Advance Access originally published online on November 6, 2008
Review of Environmental Economics and Policy 2009 3(1):22-41; doi:10.1093/reep/ren017
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On the Empirical Significance of the Hotelling Rule
* Department of Economics, University of Guelph; E-mail: live{at}uoguelph.ca
The Hotelling Rule—that price net of marginal cost must rise at the rate of interest in nonrenewable resource markets—forms the theoretical core of the economics of nonrenewable resources. It is present in one form or another in every modern paper on nonrenewable resource economics, and is the conceptual and theoretical framework used by economists to understand and model the long-run evolution of prices and supplies for nonrenewable resources. But what do we know about the empirical significance of the Hotelling Rule? What practical insights has it provided for understanding what we have actually observed in nonrenewable resource markets and how has it stood up to empirical scrutiny? These are the questions addressed in this paper. I review the evidence on the behavior of market prices over time, the evidence on the effects of technological change, direct tests of the Hotelling Rule, and the performance of the Hotelling Valuation Principle.
JEL Classification: Q30, D90