Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/171612
Authors: 
Leinert, Lisa
Year of Publication: 
2012
Series/Report no.: 
Economics Working Paper Series 12/169
Abstract: 
The Hotelling rule argues that the price for a non-renewable resource adjusts to the shadow value of the resource, reflecting its remaining availability. This study provides an empirical test of this hypothesis. It investigates whether the price of crude oil does adjust to unexpected news about oil field discoveries. The observed price reaction is compared with a prediction of the price decline as derived from the Hotelling model. This study finds evidence for an adjustment of the price to news about greater resource availability: the price of crude oil declines on average by 0.88% on discovery days. The degree of adjustment to the new level of scarcity is not found to differ significantly from the social optimum. Thus, there is evidence for the existence of a shadow cost component - a necessary pre-requisite for the Hotelling rule to hold.
Subjects: 
Non-renewable resources
Oil Price
Exhaustible Resources
JEL: 
Q31
Q41
Q14
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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