Notes on Hotelling's economics of exhaustible resources.

Notes on Hotelling's economic's of exhaustible resources. The paper provides some extensions of Hotetling's fundamental paper on the economic theory of exhaustible resources. One of the main modifications introduced in this paper concerns the assumption of complete versus incomplete exhaustion of the resource. Under complete exhaustion the concept of 'full marginal cost' must include a term which refleets the alternative cost of producting an extra unit at the terminal time. Under incomplete exhaustion this term vanishes To derive these results, we present a novel formula for the 'full marginal cost' of extracting exhaustible resources. The principle that marginal profit has to increase over time exponentially at a rate equal to the rate of interest (r per cent rule) is shown to be valid only under special conditions. The modifications to this rule are discussed. [ABSTRACT FROM AUTHOR]