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Price, scarcity rent, and a modified r per cent rule for non-renewable resources

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Listed:
  • John Livernois
  • Patrick Martin

Abstract

Since Hotelling's seminal paper on the optimal depletion of exhaustible resources, much has been published; yet confusion remains about whether scarcity rent and price increase or decrease as a resource is depleted when costs tend to rise with depletion. We show that Hotelling's fundamental results of rising scarcity rent and price paths are sustained and that the path of scarcity rent converges on the per cent rule, provided the objective function is concave. Predictions of non-monotonic or declining scarcity rent paths are due to implicit assumptions that lead to a non-concave objective function. We identify the sources of these non-concavities.

Suggested Citation

  • John Livernois & Patrick Martin, 2001. "Price, scarcity rent, and a modified r per cent rule for non-renewable resources," Canadian Journal of Economics, Canadian Economics Association, vol. 34(3), pages 827-845, August.
    • Handle: RePEc:cje:issued:v:34:y:2001:i:3:p:827-845
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    Cited by:

    1. Alain Jean-Marie & Michel Moreaux & Mabel Tidball, 2011. "Carbon sequestration in leaky reservoirs," Post-Print hal-00863230, HAL.
    2. John Livernois & Henry Thille & Xianqiang Zhang, 2006. "A test of the Hotelling rule using old‐growth timber data," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 39(1), pages 163-186, February.
    3. 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.
    4. Frederick Van der Ploeg & Cees A. Withagen, 2011. "Too Little Oil, Too Much Coal: Optimal Carbon Tax and when to Phase in Oil, Coal and Renewables," CESifo Working Paper Series 3526, CESifo.
    5. Athanasios Kampas & Stelios Rozakis, 2017. "On the Scarcity Value of Irrigation Water: Juxtaposing Two Market Estimating Approaches," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 31(4), pages 1257-1269, March.
    6. Andrei Bazhanov & John Hartwick & Zhen Song, 2007. "Declining Exhaustible Resource Rent With Small, Distinct Extractive Firms," Working Paper 1139, Economics Department, Queen's University.
    7. Chakravorty, Ujjayant & Magné, Bertrand & Moreaux, Michel, 2003. "From Coal to Clean Energy : Hotelling with a Limit on the Stock of Externalities," IDEI Working Papers 229, Institut d'Économie Industrielle (IDEI), Toulouse.
    8. Andrei Bazhanov & John Hartwick & Zhen Song, 2007. "The Extractive Firm's Cost Spillover Tax For The Extended Hotelling Model," Working Paper 1169, Economics Department, Queen's University.
    9. Voss, Achim & Schopf, Mark, 2021. "Lobbying over exhaustible-resource extraction," European Economic Review, Elsevier, vol. 135(C).
    10. Hart, Rob, 2016. "Non-renewable resources in the long run," Journal of Economic Dynamics and Control, Elsevier, vol. 71(C), pages 1-20.
    11. 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.
    12. Frederick Van der Ploeg & Cees Withagen, 2011. "Optimal Carbon Tax with a Dirty Backstop - Oil, Coal, or Renewables?," CESifo Working Paper Series 3334, CESifo.
    13. Cai, Zhiming & Clarke, Richard H. & Glowacki, Bartek A. & Nuttall, William J. & Ward, Nick, 2010. "Ongoing ascent to the helium production plateau--Insights from system dynamics," Resources Policy, Elsevier, vol. 35(2), pages 77-89, June.

    More about this item

    JEL classification:

    • Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General

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