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

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  • Roel van Veldhuizen

    (University of Amsterdam)

  • Joep Sonnemans

    (University of Amsterdam)

Abstract

This study uses the methods of experimental economics to investigate possible causes for the failure of the Hotelling rule for nonrenewable resources. We argue that as long as resource stocks are high enough, producers may choose to (partially) ignore the dynamic component of their production decision, shifting production to the present and focusing more on strategic behavior. We experimentally vary stock size in a nonrenewable resource duopoly setting and find that producers with high stocks indeed pay significantly less attention to variables related to dynamic optimization, leading to a failure of the Hotelling rule.

Suggested Citation

  • Roel van Veldhuizen & Joep Sonnemans, 2011. "Nonrenewable Resources, Strategic Behavior and the Hotelling Rule: An Experiment," Tinbergen Institute Discussion Papers 11-014/1, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20110014
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    5. 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).
    6. Courage Mlambo, 2022. "Non-Renewable Resources and Sustainable Resource Extraction: An Empirical Test of the Hotelling Rule’s Significance to Gold Extraction in South Africa," Sustainability, MDPI, vol. 14(17), pages 1-17, August.
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    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. Simon Quemin, 2020. "Using Supply-Side Policies to Raise Ambition: The Case of the EU ETS and the 2021 Review," Working Papers 2002, Chaire Economie du climat.
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    More about this item

    Keywords

    Experiments; Nonrenewable Resources; Dynamic Oligopoly;
    All these keywords.

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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