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The Hotelling Principle: Autobahn or Cul de Sac?

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  • G.C. Watkins

Abstract

The economics of relations between prices and resource stocks has been dominated by the Hotelling Principle. But seemingly little attention has been given to the Principle by the oil and gas industry itself. In this paper the Principle is appraised, some new empirical results based on the value of oil and gas reserves sales are introduced, models which relax more of the Hotelling assumptions are reviewed, and the industry milieu in the context of a Hotelling style framework is discussed. The Principle is seen as affording fundamental theoretical insights, but is not found to cope well with industry realities.

Suggested Citation

  • G.C. Watkins, 1992. "The Hotelling Principle: Autobahn or Cul de Sac?," The Energy Journal, , vol. 13(1), pages 1-24, January.
    • Handle: RePEc:sae:enejou:v:13:y:1992:i:1:p:1-24
    DOI: 10.5547/ISSN0195-6574-EJ-Vol13-No1-1
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    References listed on IDEAS

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    1. William D. Nordhaus, 1973. "The Allocation of Energy Resources," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(3), pages 529-576.
    2. Geoffrey Heal, 1976. "The Relationship Between Price and Extraction Cost for a Resource with a Backstop Technology," Bell Journal of Economics, The RAND Corporation, vol. 7(2), pages 371-378, Autumn.
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