Question

What conditions must be satisfied to ensure the optimal extraction of a depletable resource?

(Module- Economics of the enviornment and natural resources)

Answer 1

Hotelling’s rule is a necessary efficiency condition that needs to be satisfied by any optimal extraction programme. The Hotelling rule is an economic theory that states the discounted value of the resource need to be the same at all dates. It displays how resource prices must behave under a specified/ restrictive set of conditions. The rule states that there is nothing special in regard to the natural resources per se when it comes to consideration of the efficiency. A natural resource is categorised as an asset and all efficiently managed assets are required to satisfy the condition that their discounted prices must be equal at all points in time