What does Hotelling’s rule imply about the change in resource rents over time?

What does Hotelling’s rule imply about the change in resource rents over time?

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Expert Solution

Hotellings rule implies that the percentage change in net price per unit of time should equal the discount rate to maximize the present value of resource capital over the extraction period
This rule also implies that the maximum hotelling rent can be obtained over time while employing the stock resources
His rule generates basic implications about how the availablility of non renewable resources affect the resource price and extraction paths over time
According to him the price path of the resource will increase over time in more realistic models.
And the only way of having a return on prescribing the resource stock is that the net price of the resource increases over time.
He predicts that non monotonic or declining scarcity rent paths over time are due to inflict assumption that lead to a non concave objective function.
A main conclusion of his study was that in equilibrium the resource rent must increase over time at a rate equal to the rate of interest.

Rahul Sunny answered 1 year ago

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