Testing the Assumptions and Predictions of the Hotelling ModelEnvironmental and Resource Economics (2017)
In this paper, we empirically examine whether the assumptions and predictions of the Hotelling model are consistent with patterns observed in data. We consider nonlinear functional forms for the extraction cost and resource demand to develop an empirical Hotelling model with technological progress and stock dependent extraction costs. Using panel data on fourteen nonrenewable natural resources to estimate this empirical Hotelling model, we get qualitatively different results as compared to the related literature. We find evidence of stock-dependent extraction costs for most resources. There is no evidence against the linearity of the optimal extraction rate in the resource stock for almost all resources studied. Furthermore, the Hotelling model may sustain a zero long-run growth rate in resource prices. These results depend on whether firms use different extractive technologies or whether the structural break observed on resource prices is taken into account.
- Nonrenewable natural resources; Optimal extraction; Resource prices; Hotelling model; Panel data
Publication DateWinter January 1, 2017
Citation InformationCalvin Atewamba and Bruno Nkuiya. "Testing the Assumptions and Predictions of the Hotelling Model" Environmental and Resource Economics Vol. 66 Iss. 1 (2017) p. 169 - 203
Available at: http://works.bepress.com/bruno-nkuiya/9/