Bubbles in Prices of Exhaustible Resources
32 Pages Posted: 24 Aug 2007 Last revised: 26 May 2021
Date Written: August 2007
Aside from the equilibrium that Hotelling (1931) displayed, his model of non-renewable resources also contains a continuum of bubble equilibria. In all the equilibria the price of the resource rises at the rate of interest. In a bubble equilibrium, however, the consumption of the resource peters out, and a positive fraction of the original stock continues to trade forever. And that may well be happening in the market for high-end Bordeaux wines.
Suggested Citation: Suggested Citation