Lecture_14 - Hotelling Model Today: Harold Hotelling,...

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Hotelling Model Today : Harold Hotelling, mathematical economist Two-period model – summarizing results from last time and numerical example T-period model
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Harold Hotelling 1895-1973 “The Economics of Exhaustible Resources,” Journal of Political Economy , 1931. Professor, Columbia University; mathematical statistics, mathematical economics
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Key results from last time General findings: – q o * > q 1 * – p o * < p 1 * – (p 1 – c) = (p 0 – c)(1+r) [Hotelling’s rule] Hotelling rent. Price ≠ marginal extraction cost A form of producer’s surplus created by the finite stock of an exhaustible resource – Computed as [(p t – c)*q t ]
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Key Results (cont.) • Hotelling’s rule: net price [(p t – c)] increases over time at the interest rate • Notice: (p 0 – c) = λ (p 1 – c)/(1+r) = λ λ = shadow price, or Lagrange multiplier How do we interpret λ in this case?
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with 2-period model • B(q t ) = 700q t – 0.125q t 2 [dollars]
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This note was uploaded on 04/03/2008 for the course ECON 472 taught by Professor Moore during the Winter '08 term at University of Michigan.

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Lecture_14 - Hotelling Model Today: Harold Hotelling,...

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