Reserve Asset Values and the Hotelling Valuation Principle: Further Evidence

Abstract

An economics classic [14] was restated by Dasgupta and Heal [6]: the net price of a mineral must rise at the rate of discount. But econometric analysis failed to verify this, according to Miller and Upton [15]. The Hotelling Principle is often couched in terms of flow equilibria in output markets. The Rule can also be derived [27] as a condition of stock equilibrium in asset markets. Miller and Upton followed the asset framework in defining the Hotelling Rule, a formulation they called the Hotelling Valuation Principle (HVP): the market value of a mineral in the ground is equal to its current net price. This follows from the fact that if the net price rose at the rate of interest, the present value of the net price would be the same whenever the resource is extracted, given asset value maximization.