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The Evolution of Natural Resource Prices under Stochastic Investment Opportunities: An Intertemporal Asset-Pricing Approach

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  • Gaudet, Gerard
  • Khadr, Ali M

Abstract

The authors consider the competitive equilibrium of an economy with technological uncertainty in the production of a composite good and in the extraction of a nonrenewable natural resource. The familiar Hotelling-type rule takes the form of the intertemporal asset-pricing equation of portfolio theory. It characterizes the evolution of the resource price. In its so-called consumption-beta formulation, it predicts that the expected excess return to holding the resource in the ground is proportional to the covariance between the return to holding the resource and the rate of change of per capita consumption. This suggests a framework for testing the Hotelling rule. Copyright 1991 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Gaudet, Gerard & Khadr, Ali M, 1991. "The Evolution of Natural Resource Prices under Stochastic Investment Opportunities: An Intertemporal Asset-Pricing Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(2), pages 441-455, May.
    • Handle: RePEc:ier:iecrev:v:32:y:1991:i:2:p:441-55
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    Cited by:

    1. van den Bremer, Ton & van der Ploeg, Frederick & Wills, Samuel, 2016. "The Elephant In The Ground: Managing Oil And Sovereign Wealth," European Economic Review, Elsevier, vol. 82(C), pages 113-131.
    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. Gaudet, Gérard, 1990. "Commentaire," L'Actualité Economique, Société Canadienne de Science Economique, vol. 66(4), pages 461-466, décembre.
    4. Atewamba, Calvin & Gaudet, Gérard, 2014. "Prices of durable nonrenewable natural resources under stochastic investment opportunities," Resource and Energy Economics, Elsevier, vol. 36(2), pages 528-541.
    5. Gollier, Christian, 2018. "The cost-efficiency carbon pricing puzzle," TSE Working Papers 18-952, Toulouse School of Economics (TSE), revised May 2024.
    6. Jason Stevens, 2013. "The benefits of storage and non‐renewable resource price dynamics," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 46(1), pages 239-265, February.
    7. Brian R. Copeland & M. Scott Taylor, 2017. "Environmental and resource economics: A Canadian retrospective," Canadian Journal of Economics, Canadian Economics Association, vol. 50(5), pages 1381-1413, December.
    8. Kakeu, Johnson & Nguimkeu, Pierre, 2017. "Habit formation and exhaustible resource risk-pricing," Energy Economics, Elsevier, vol. 64(C), pages 1-12.
    9. Gérard Gaudet, 2007. "Natural resource economics under the rule of Hotelling," Canadian Journal of Economics, Canadian Economics Association, vol. 40(4), pages 1033-1059, November.
    10. Johnson Kakeu, 2016. "Exhaustibility and Risk as Asset Class Dimensions: A Social Investor Approach to Capital-Resource Economies," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 65(4), pages 677-695, December.
    11. Rick van der Ploeg, 2014. "Guidelines for exploiting natural resource wealth," Oxford Review of Economic Policy, Oxford University Press, vol. 30(1), pages 145-169.

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