Hotelling's rule: can someone please explain??! I just don't get it!?

Question

it's in economics and well, i dont have a clue as to what it means... ilooked it up but still dont get it!!

there is this rule called "Hotelling's rule" in the field of economics. it has something to do with non-renewable natural resources, but i do not understand the concept of this 'rule'. its by a man called HAROLD HOTELLING. he was an economist. please help!! :)

Answer 1

Well, Hotelling has 2 famous theories. The Hotelling rule and the Hotelling law. Maybe you dont get the Hotelling rule because its not the field you are studying.

The Hotelling rule has to do in the area of finance and resource managment. He found out that, while exploting a non-renewable natural resource, imagine a gold mine, in order for the explotation to be optimal, the change in net price per unit should be equal to the discount rate. That is, the price of gold tomorrow divided by the price of gold today is equal to the discount rate.

Since this is the economics department, i guess you may be looking for Hotelling´s law, which is much used in microeconomics and industrial organization. The Hotelling law states that similar stores should look to have their product as similar as possible. Its a theory of minimum differentiation. Its counterpart is the theory of differentiation. He stated that minimum differentiation could help stores divide the market. Under the assumption that is all products are alike, consumers will go to buy to the closest store. So, imagine a town with only 1 street. If both stores have practially the same product, and the stores are located both in the middle of the street, or bot at the end of the street, consumer will go to the nearest store. Dividing the market share 50-50. This is commonly used in primary commodities.

Hope i helped. Good luck!

Answer 2

The owners of a resource makes a choice of selling a portion and buying bonds or other interest-bearing assets. If the owners thought prices were going to rise faster than that, they would keep the resource. If they thought that prices were going to rise more slowly, then they would sell the resource and buy bonds. The amount sold in each time period to obtain the desired price depends on the demand curve, which is assumed to be known, as well as its behavior in time.
Note: The demand curve gives the price per unit of the resource as a function of the amount supplied. Therefore in deciding the price desired they decide the amount to sell in each time period.

Answer 3

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