Non-Renewable Resource Economics and Geological Constraints: a Review

Abstract

In 1931, Harold Hotelling introduced the Hotelling rule—the fundamental theoretical principle of non-renewable resource economics. However, almost ninety years later, economists are still unable to establish a generalized, empirical validity for the rule. As concerns mineral resources, recent developments suggest that geological constraints may play a larger role in explaining why they would not follow the rule, than the traditional understanding. This paper reviews the evolving role geological constraints have played in the literature on non-renewable resource economics. It explores their evolution from the early days, where the focus was on the exhaustibility constraint as the main determinant of the evolution of price and output, to more recent years, with the realization that geological constraints can be a promising route to explain empirically accepted stylized facts.