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The Hotelling Principle: Autobahn or Cul de Sac?

Abstract:
The economics of relations between prices and resource stocks has been dominated by the Hotelling Principle. But seemingly little attention has been given to the Principle by the oil and gas industry itself. In this paper the Principle is appraised, some new empirical results based on the value of oil and gas reserves sales are introduced, models which relax more of the Hotelling assumptions are reviewed, and the industry milieu in the context of a Hotelling Style framework is discussed. The Principle is seen as affording fundamental theoretical insights, but is not found to cope well with industry realities.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Petroleum – Policy and Regulation

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General

Keywords: Hotelling, Oil and gas reserves, valuation, Depletion, Energy policy

DOI: 10.5547/ISSN0195-6574-EJ-Vol13-No1-1


Published in Volume 13, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.