The testable implications of a capital‐accumulating, price‐taking, vertically integrated, non‐renewable resource extracting model of the firm

Abstract

AbstractAn exhaustive set of refutable implications of a price‐taking, capital‐accumulating, vertically integrated Hotelling model is derived by way of intertemporal duality theory. The curvature properties of the model come in the form of a semidefinite matrix, and an upper bound to the rank of the matrix is established. The theorems, for the first time, permit one to determine if a given sample of data is fully consistent with the generalized Hotelling model, as well as the recovery of theoretically valid estimates of the shadow values of non‐renewable resource and capital stocks. The testable implications of the model go beyond those of the archetypal Hotelling and adjustment cost models, and as such, display several properties not present in the prototype models. Copyright © 2008 John Wiley & Sons, Ltd.