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English to German: THE HOTELLING RULE AND ITS USE IN THE ROMANIAN MINING INDUSTY General field: Bus/Financial Detailed field: Economics
Source text - English 1. INTRODUCTION
All the mineral resources are depletable; in the meantime, the need of the sosiety for raw materials is increasing. These aspects must be taken into consideration when the price of the useful mineral substances are established, or when a forecast of the evolution of the prices is made.
In 1931, Harold Hotelling worked out the theory for this special case. In the case of the depletable resources, the producer has to decide how best to optimise production between now or the future so as to maximise profits, since any production level will see the eventual depletion of the resources.
2. HOTELLING’S RULE
Hotelling's rule states that the most socially and economically profitable extraction path of a non-renewable resource is one along which the price of the resource, determined by the marginal net revenue from the sale of the resource, increases at the rate of interest. It describes the time path of natural resource extraction which maximizes the value of the resource stock. (Gaudet, Gérard, "Natural Resource Economics under the Rule of Hotelling").
According to the Hotelling rule, in a competitive market, the price of a depletable resource must increase at the same rate as the discount rate. The theory for this special case was worked out in the classic paper of Hotelling (1931).
The Hotelling rule could be explained as follows. Take a competitive market with identical producers that have depletable resources on the ground. Any production level will cause eventually the depletion of the resources, and the producer must decide how to plan the production between now or the future so as to maximise profits.
If he increases his production high enough by increasing present supply and lowering present prices, his resource stocks will deplete at a faster rate, and the rate of future price will increase γ to be high. In this case, γ > r (discount rate). But his competitor may find it better not to follow his lead. This will enable them to enjoy future higher prices, which grows higher than the discount rate. As a result, in order to reach equilibrium, the producer will lower his production enough so that γ = r.
On the contrary, supposing that he limits his production, causing the present prices to become higher whilst stocks are depleted more slowly. Future price increases now become less, such that γ < r. Competitors now find it better to increase their production, and invest the money into the money market for a higher return. In this situation, equilibrium sets that the producer will increase his production enough so that γ = r.
In Jeffrey A. Krautkraemer’s words, “Hotelling’s formal analysis of nonrenewable resource depletion generates some basic implications for how the finite availability of a nonrenewable resource affects the resource price and extraction paths.” (Krautkraemer, Jeffrey A., Nonrenewable Resource Scarcity)
Hotelling’s rule addresses one fundamental question of the firm involved in the exploitation of the non-renewable resource: How much of the asset should be consumed now and how much should be stored for the future? That means that the firm must choose between the current value of the asset if extracted and sold and the future increased value of the asset if left unexploited. This rule can be expressed by the equilibrium situation representing the optimal solution.
(P_((t))^')/P_((t)) =δ (1)
when P(t) is the unit profit at time t and
δ is the discount rate (the inverse of rate of return).
The stock of a non-renewable resource, being an asset, holds a market value which yields returns to its owner at a certain rate. This rate of return can be determined by three components:
flow of product generated by the marginal unit of the resource, marginal productivity or dividend rate;
change in the physical characteristics of the asset over time;
the rate at which market value of the asset will change over time.
The equality of this rate of return to the rate of return of alternative investments (e.g. if the yield obtained from asset’s sale is invested elsewhere) determines the asset market’s equilibrium. Taking into consideration a nonrenewable resource, such as a stock of oil in the ground, it is subject to two characteristics:
it has a fixed size which cannot be increased over time and
the in-situ asset is unproductive.
This makes the first component, marginal productivity, zero. Assuming that holding the asset in-situ will not lead to its depreciation, even the second component is rendered zero. Remainder is the rate of appreciation of the asset’s value which is in fact the only determinant of rate of return of the stock of oil.
According to Hotelling, the evolution of the prices of a non renewable resource over the years, starting with the present and until the resource is depleted is as follows:
P(0)
Translation - German 1. EINLEITUNG
Alle Bodenschätze sind erschöpfbar; im Laufe der Zeit, die Notwendigkeit der Gesellschaft für Rohstoffe steigt. Diese Aspekte müssen berücksichtigt werden, wenn der Preis der nützliche mineralischen Stoffen hergestellt wird, oder wenn eine Prognose der Entwicklung der Preise erfolgt.
1931, Harold Hotelling arbeitete die Theorie für diesen speziellen Fall. Im Fall des erschöpfbaren Ressourcen, der Produzent hat zu entscheiden, wie man am besten die Produktion zwischen Gegenwart und Zukunft zu optimieren, um die Gewinne zu maximieren, da jedes Produktionsniveau die Erschöpfung der Ressourcen sehen wird.
2. HOTELLING REGEL
Die Hotelling-Regel besagt, dass der sozial und wirtschaftlich profitabelste Förderweg einer nicht erneuerbaren Ressource einer ist, bei dem der Preis der Ressource, der durch die marginalen Nettoeinnahmen aus dem Verkauf der Ressource bestimmt wird, mit dem Zinssatz steigt. Es beschreibt den Zeitverlauf der Rohstoffgewinnung, der den Wert des Ressourcenbestands maximiert. (Gaudet, Gérard, "Natural Resource Economics under the Rule of Hotelling").
Gemäß der Hotelling-Regel, muss in einem Wettbewerbsmarkt der Preis für eine abbaubare Ressource im gleichen Verhältnis wie der Diskontsatz steigen. Die Theorie für diesen speziellen Fall wurde in der klassischen Arbeit von Hotelling (1931) ausgearbeitet. Die Hotelling-Regel könnte wie folgt erläutert werden. Nehmen Sie einen wettbewerbsfähigen Markt mit identischen Herstellern, die vor Ort erschöpfbare Ressourcen haben. Jedes Produktionsniveau wird schließlich die Erschöpfung der Ressourcen verursachen, und der Produzent muss entscheiden, wie die Produktion zwischen jetzt und in der Zukunft geplant werden soll, um die Gewinne zu maximieren.
Wenn er seine Produktion hoch genug erhöht, indem er das gegenwärtige Angebot erhöht und die gegenwärtigen Preise senkt, werden seine Ressourcenvorräte schneller aufgebraucht sein, und die Rate des zukünftigen Preises wird γ erhöhen. In diesem Fall ist γ> r (Diskontsatz). Aber sein Konkurrent könnte es besser finden, seiner Führung nicht zu folgen. Dadurch können sie künftig höhere Preise genießen, die über dem Diskontsatz liegen. Um das Gleichgewicht zu erreichen, wird der Produzent deshalb seine Produktion so weit senken, dass γ = r ist.
Im Gegenteil, wenn er seine Produktion begrenzt, verursacht die gegenwärtigen Preise höher zu werden, und die Vorräte werden langsamer erschöpft. Zukünftige Preiserhöhungen werden nun geringer, so dass γ
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