lecture_15 - Hotelling Model Building on last week`s...

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Hotelling Model Building on last week’s development Today’s topics Finding T*, the efficient exhaustion date • Comparative static analysis on T* and p 0 … what happens when change c, r, or S 0 ? Competitive industry in a nonrenewable resource …decentralizing the dynamically efficient solution
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Recall main findings Goal: maximizing the present value of surplus (consumer’s surplus + Hotelling rent) from nonrenewable resource exhaustion Quantity used decreases over time (discounting) Price increases over time (Hotelling’s rule) p t – c = (p 0 – c)(1+r) t t=1,…,T-1, T Initial stock exhausted Interpreting lambda
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4-quadrant representation of the model Price path Demand function: translating price at a particular time into quantity at that time Identity map Quantity path – Integrating under quantity path returns S 0
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Page 282 of reading
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Finding T*, the efficient exhaustion date Ambiguity: many price paths follow Hotelling’s Rule …which one is correct? Concept: terminal conditions.
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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_15 - Hotelling Model Building on last week`s...

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