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Unformatted text preview: Pictu re 3 02:20 Hotelling's rule: net price path = function of time, maximizing rent while fully extracting a non-renewable natural resource (by the time it reaches terminal price). Maximum rent aka. Hotelling rent or scarcity rent: reflects the increasing scarcity of the resource In an efficient exploitation of a non-renewable resource, % change in net-price per unit of time should equal the discount rate P t C = (P 0 C)e-rt P(t)/P(t) = when P(t) is the unit profit at time t and is the discount rate. Stock S=: must exhaust by max. price, substitute starting price If increase P, then shifts up = unsold supply Competing (substitute) non-renewable resources with different costs of extraction C=oil, CH=coal Use S= for backstop price of coal, work backward to initial price of coal =...
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This note was uploaded on 01/26/2010 for the course ECON 330 at Yale.