Edited by Robert Halvorsen and David F. Layton
Chapter 3: Empirical evidence on the theory of nonrenewable resource economics
The literature on the economics of nonrenewable resources has focused on modeling the long-run dynamic behavior of nonrenewable resource firms and the associated implications for markets. At the heart of the literature lies an analysis of the behavior of scarcity rent over time because of its central role in the determination of depletion and price profiles. True, market prices for nonrenewables are determined by the usual myriad of supply-side and demand-side factors, but the one factor that sets nonrenewable resource price determination apart from that in other markets is scarcity rent. Consequently, the determinants and behavior of scarcity rent has dominated the literature and captured the attention of economists. Theory predicts that scarcity rent rises at the rate of interest in the basic Hotelling (1931) model and rises less rapidly when extraction cost rises with depletion.
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