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Nonrenewable Resources, Strategic Behavior and the Hotelling Rule: An Experiment

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  • Roel van Veldhuizen
  • Joep Sonnemans

Abstract

We use a laboratory experiment to investigate a novel reason for the lack of empirical support for the Hotelling rule for nonrenewable resources. Specifically, we test whether producers with large resource stocks focus less on the dynamic component of their extraction decision, making them shift extraction to the present and focus more on strategic behavior. Exploiting exogenous variation in stock size in a nonrenewable resource duopoly laboratory experiment, we find that producers with large stocks indeed pay significantly less attention to dynamic optimization, and shift extraction to the present, leading them to overproduce relative to the Hotelling rule.

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  • Roel van Veldhuizen & Joep Sonnemans, 2018. "Nonrenewable Resources, Strategic Behavior and the Hotelling Rule: An Experiment," Journal of Industrial Economics, Wiley Blackwell, vol. 66(2), pages 481-516, June.
    • Handle: RePEc:bla:jindec:v:66:y:2018:i:2:p:481-516
    DOI: 10.1111/joie.12173
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    2. Vierhaus, Ingmar & van Veldhuizen, Roel & Fügenschuh, Armin, 2017. "Strategic Uncertainty in Markets for Nonrenewable Resources: A Level-k Approach," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 1-8.
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    6. Spiro, Daniel, 2014. "Resource prices and planning horizons," Journal of Economic Dynamics and Control, Elsevier, vol. 48(C), pages 159-175.
    7. Youmanli Ouoba, 2023. "Testing the necessary conditions for sustainability in the mining sector in Burkina Faso," Mineral Economics, Springer;Raw Materials Group (RMG);Luleå University of Technology, vol. 36(1), pages 1-12, January.
    8. Jörg Spiller & Friedel Bolle, 2013. "Inter-Generational Thoughtfulness in a Dynamic Public Good Experiment," Discussion Paper Series RECAP15 008, RECAP15, European University Viadrina, Frankfurt (Oder).
    9. Terreaux, Jean-Philippe, 2022. "The rise and fall of La Graufesenque: The fate of development based on a non-renewable resource," Ecological Economics, Elsevier, vol. 196(C).
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    More about this item

    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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