Nonrenewable Resources, Strategic Behavior and the Hotelling Rule: An Experiment

36 Pages Posted: 31 Oct 2018

See all articles by Roel van Veldhuizen

Roel van Veldhuizen

WZB Berlin Social Science Center

J. H. Sonnemans

University of Amsterdam - Faculty of Social and Behavioral Sciences; Tinbergen Institute

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Date Written: June 2018

Abstract

We use a laboratory experiment to investigate a novel reason for the lack of empirical support for the Hotelling rule for nonrenewable resources. Specifically, we test whether producers with large resource stocks focus less on the dynamic component of their extraction decision, making them shift extraction to the present and focus more on strategic behavior. Exploiting exogenous variation in stock size in a nonrenewable resource duopoly laboratory experiment, we find that producers with large stocks indeed pay significantly less attention to dynamic optimization, and shift extraction to the present, leading them to overproduce relative to the Hotelling rule.

Suggested Citation

van Veldhuizen, Roel and Sonnemans, J. H., Nonrenewable Resources, Strategic Behavior and the Hotelling Rule: An Experiment (June 2018). The Journal of Industrial Economics, Vol. 66, Issue 2, pp. 481-516, 2018, Available at SSRN: https://ssrn.com/abstract=3275624 or http://dx.doi.org/10.1111/joie.12173

Roel Van Veldhuizen (Contact Author)

WZB Berlin Social Science Center ( email )

Reichpietschufer 50
D-10785 Berlin, 10785
Germany

J. H. Sonnemans

University of Amsterdam - Faculty of Social and Behavioral Sciences ( email )

Kloveniersburgwal 48
Amsterdam, 1012 CX
Netherlands
+31 20 525-4249 (Phone)

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

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