In Econ211 Environmental Economics we will soon be covering the Hotelling (1931) Rule.
This paper takes it on to look at bubble equilibria. With many non-renewable resource prices at record highs this is a timely paper.
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Bubbles in Prices of Exhaustible Resources
BOYAN JOVANOVIC
New York University - Department of Economics; National Bureau of Economic Research (NBER) August 2007
NBER Working Paper No. W13320
Abstract:
Aside from the equilibrium that Hotelling (1931) displayed, his model of non-renewable resources also contains a continuum of bubble equilibria. In all the equilibria the price of the resource rises at the rate of interest. In a bubble equilibrium, however, the consumption of the resource peters out, and a positive fraction of the original stock continues to trade forever. And that may well be happening in the market for high-end Bordeaux wines.
JEL Classifications: E44, G12
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