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Hotelling argues this equilibrium is stable even though the sellers may try to establish a price cartel. Market socialism and Georgism[ edit ] As an extension of his research in spatial economics, Hotelling realized that it would be possible and socially optimal to finance investment in public goods through a Georgist land value tax and then provide such goods and services to the public at marginal cost in many cases for free.

This is an early expression of the Henry George theorem that Joseph Stiglitz and others expanded upon. Hotelling pointed out that when local public goods like roads and trains become congested, users create an additional marginal cost of excluding others. Hotelling became an early advocate of Georgist congestion pricing and stated that the purpose of this unique type of toll fee was in no way to recoup investment costs, but was instead a way of changing behavior and compensating those who are excluded.

Hotelling describes how human attention is also in limited supply at any given time and place, which produces a rental value; he concludes that billboards could be regulated or taxed on similar grounds as other scarcity rents. Hotelling reasoned that rent and taxation were analogous, the public and private versions of a similar thing.

Therefore, the social optimum would be to put taxes directly on rent. In economics , non-convexity refers to violations of the convexity assumptions of elementary economics. Basic economics textbooks concentrate on consumers with convex preferences and convex budget sets and on producers with convex production sets ; for convex models, the predicted economic behavior is well understood. A disconnected demand implies some discontinuous behavior by the consumer as discussed by Hotelling: If indifference curves for purchases be thought of as possessing a wavy character, convex to the origin in some regions and concave in others, we are forced to the conclusion that it is only the portions convex to the origin that can be regarded as possessing any importance, since the others are essentially unobservable.

They can be detected only by the discontinuities that may occur in demand with variation in price-ratios, leading to an abrupt jumping of a point of tangency across a chasm when the straight line is rotated. But, while such discontinuities may reveal the existence of chasms, they can never measure their depth. The concave portions of the indifference curves and their many-dimensional generalizations, if they exist, must forever remain in unmeasurable obscurity.


Notes on Hotelling's Economics of Exhaustible Resources

Zolojind In a similar vein, Ricardo explored on the significance of land quality ecconomics economic rent. The increase of nominal price of the resource by the Hotelling rule takes place until the exhaustion of the resource. This page was last edited on 12 Octoberat The paper finds that while the Hotelling theory had contributed to the economics of nonrenewable resources and the rise of the conservationism movement, the assumptions laid out by the theory are not applicable to the real world. As can be seen with the long history of petroleum regulation in the US, government intervention has generally been lacking in information and has been highly problematic in practice Adelman Also, economic indicators do not provide evidence of an increase in scarcity of these resources Krautkraemer Therefore a competitive mining firm will rise its production until its marginal production cost and the opportunity cost reaches the market price: Representation of the Hotelling rent user cost and the Ricardian rent.


Hotelling's "Economics of Exhaustible Resources": Fifty Years Later



Harold Hotelling


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