Hotelling's rule defines the net

price path A price is the (usually not negative) quantity of payment or Financial compensation, compensation given by one Party (law), party to another in return for Good (economics), goods or Service (economics), services. In some situations, the pr ...

as a function of time while maximizing

economic rent In economics, economic rent is any payment (in the context of a market transaction) to the owner of a factor of production in excess of the cost needed to bring that factor into production. In classical economics, economic rent is any payment ...

in the time of fully extracting a non-renewable natural resource. The maximum rent is also known as Hotelling rent or scarcity rent and is the maximum

rent Rent may refer to: Economics *Renting, an agreement where a payment is made for the temporary use of a good, service or property *Economic rent, any payment in excess of the cost of production *Rent-seeking, attempting to increase one's share of e ...

that could be obtained while emptying the stock resource. In an efficient exploitation of a non-renewable and non-augmentable resource, the percentage change in net-price per unit of time should equal the discount rate in order to maximise the present value of the resource capital over the extraction period. This concept was the result of analysis of non-renewable

resource management In organizational studies, resource management is the efficient and effective development of an organization's resources when they are needed. Such resources may include the financial resources, inventory, human skills, production resources, or ...

Harold Hotelling Harold Hotelling (; September 29, 1895 – December 26, 1973) was an American mathematical statistician and an influential economic theorist, known for Hotelling's law, Hotelling's lemma, and Hotelling's rule in economics, as well as Hotelling's ...

, published in the ''Journal of Political Economy'' in 1931, on the basis of his previous research on depreciation (see Hotelling 1925), which invites us to consider with caution the application of Hotelling's rule to concrete natural resources, in particular fossil fuels (coal, oil, gas). Devarajan and Fisher note that a similar result was published by L. C. Gray in 1914, considering the case of a single mine owner. The simple rule can be expressed by the equilibrium situation representing the optimal solution. :

\frac  = \delta,

when ''P''(''t'') is the unit

profit Profit may refer to: Business and law * Profit (accounting), the difference between the purchase price and the costs of bringing to market * Profit (economics), normal profit and economic profit * Profit (real property), a nonpossessory inter ...

at time ''t'' and δ is the discount rate. The

obtained is an abnormal rent, often referred to as

resource rent In economics, rent is a surplus value after all costs and normal returns have been accounted for, i.e. the difference between the price at which an output from a resource can be sold and its respective extraction and production costs, including nor ...

, since it generates from a situation where the resource owner has open access to the resource for free. In other words, the resource rent is the resource royalty or resource's net price (price received from selling the resource minus costs. In this case costs are zero). The resource rent therefore equals the shadow value of the natural resource or

natural capital Natural capital is the world's stock of natural resources, which includes geology, soils, air, water and all living organisms. Some natural capital assets provide people with free goods and services, often called ecosystem services. All of t ...

References

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Notes

{{Reflist Renting Non-renewable resources Resource economics

See also

References

Notes