Bubbles in prices of exhaustible resources

Author / Creator

Jovanovic, Boyan, 1951-

Available as

Online

Summary

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 rise...

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.

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