Harold Hotelling's Essay Example | Topics and Well Written Essays - 1250 words

Harold Hotelling's - Essay Example These economists make this prediction by studying the prevailing interest rates. According to Per-Olov and Karl-Gustav (2000, 78) upon evaluation and analysis, Hotelling’s theory of nonrenewable resources can still be found to be effective, its flaws notwithstanding. One of the qualities that Hotelling’s theory enjoys and derives vindication from is the fact that the theory generates fundamental implications on how the finite availability of nonrenewable resources affects resource extraction path and resource pricing. Because of this, renowned economists such as Gaurav and Komalirani (2009, 145) divulge that by this virtue, Hotelling’s theory has been instrumental in addressing the most fundamental question that is due to the agent or owner of the investment: the extent to which the nonrenewable asset should be consumed at the moment, and the extent to which the nonrenewable resources should be stored for future use (Per-Olov and Karl-Gustav, 2000, 78). ... uctivity (the flow of the product being generated by marginal units of the resource); the change that will have acted upon the physical characteristics of the nonrenewable asset, over time; and the change that will have acted upon the nonrenewable asset’s market value, over time (Sun and Kaplan, 2010, 75). According to Anderson (2007, 54), Hotelling’s theory considers fast logistics as critical to the success of modern manufacturing industry. This is because people stay far away from work station and thereby have to use automobiles to commute. Likewise, the extraction of oil and other nonrenewable resources by far transcends the use of manual labour and must therefore assume the use of logistics. This reality is further compounded by the introduction and development of global logistic networks. The importance of logistics in Hotelling’s theory is seen in the acknowledgement of logistic curve as an instrument that is important in the estimation of future productio n, through the use of previously observed discoveries. The consideration of logistics in Hotelling’s theory is also underscored by it being instrumental in determining reliability (the most likely estimate and the upper-bound estimate). The upper-bound estimate is the logistic curve that has a growth rate of 6% and ultimate resource which is commensurate to 200 Giga-barrels (Gb) and a peak of 1970. Conversely, the most likely estimate refers to a logistic growth rate that is commensurate to 6%, final resource that equals 150 Gb and a single peak in 1965 (Kandelaars, 1999, 70 and Sanders, 2011, 25). In respect to the above, the value of the marginal unit of natural resources that are held in-situ, minus the cost of extraction will be the value of the resources which will be in the flow market. For