The non-renewable resource exploring-extracting firm and the r% rule

Abstract

A simple re-formalization of Pindyck's classic model of the non-renewable resource exploringextracting firm permits one to see that the optimal exploration-extraction program is governed by a pure r% rule [Hotelling (1931)]. This fact has interesting implications for valuing resource extracting firms by ‘the Hotelling Valuation Principle’ and for valuing economic depreciation with exhaustible resources at the level of the firm and of the national economy.