Steady-State Growth in a Hotelling Model of Resource Extraction
Jointly written with C.-Y. Cynthia Lin. This version: April 13, 2007. Forthcoming in the Journal of Environmental Economics and Management.
Abstract
This paper re-examines the Hotelling model of optimal depletable resource extraction in light of stock effects and technological progress. We assume functional forms for cost and demand so that the solution to the Hotelling problem is a steady-state consistent with the empirical observation that the growth rates of market prices have remained zero over a long period of time. We use data on 14 minerals from 1970 to 2004 to estimate the supply and demand functions using SUR and 3SLS and to test the model. We validate the model for 8 of 14 minerals.
