Hotelling's rule
Harold Hotelling published a paper The Economics of Exhaustible Resources in the Journal of Political Economy in 1931, this analysis lead to what became known as Hotelling's rule.
Hotelling was an American mathematical statistician and an economic theorist who is also associated with other phrases including Hotelling's law, Hotelling's lemma and Hotelling's T-square distribution in statistics. Hotelling's rule, although established in the 1930s became well know in the 1970s after the oil crisis and high oil prices because it looked at how the economics of finite resources, such as oil from an economic perspective. It is also relevant today in relation to the construction of buildings because there is increasing awareness of the environmental impacts of material use in buildings and the differentiation between renewable and non-renewable resources.
Standard capitalist economics, usually looks at how prices are established on normal goods or services, in the neoclassical sense or a demand and competition context, the aims being to achieve maximum profits for producers with minimimal costs. In this scenario the economic rules generally show that price equals marginal cost in perfect competition. Hotelling introduced into this equation the possibility resources are not infinately available, and many are indeed finite with limited availabilty, such as coal, oil, natural gas (something people became increasingly aware of from the 1970s).
The rule shows that, in the profit-maximization scenario, if a resource is finite, the producer will not just charge a marginal cost, he will need to also charge a premium which he called the scarcity rent. This scarcity rent premium allows for the fact that once consumed, that one unit of finite resource, is no longer available in the future. So once this is factored into the equation the logical economics would be to sell the product or resource a price that increases at the rate of interest.
Or in other words 'the net price path is a function of time, while maximizing economic rent during the time of fully extracting a non-renewable natural resource. The maximum rent, the scarcity or Hotelling rent is the maximum rent that could be obtained while emptying the stock resource. In efficient exploitation of a non-renewable and non-augmentable resource, the percentage change in net-price per unit of time should equal the discount rate in order to maximise the present value of the resource capital over the extraction period.'
[edit] Related articles on Designing Buildings
- A social, circular economy.
- Circular economy models.
- Circular economy - transforming the worlds number one consumer of raw materials.
- Composting.
- Composites.
- Construction materials
- Construction waste.
- Cradle to cradle product registry system.
- Deconstruction.
- Design for deconstruction.
- Economic sustainability.
- End of life potential.
- Green supply chain management.
- Life cycle.
- Planned obsolescence
- Products as a Service PaaS.
- Quantification of construction materials in existing buildings (material intensity).
- Recyclable construction materials.
- Recycling.
- Reduce, reuse, recycle.
- Renewable energy.
- Reused construction products.
- Sustainable materials.
- Sustainability.
- Types of biobased materials.
- Types of materials.
- Use of ceramics in construction.
- Waste management plan.
- Waste management plan for England.
Featured articles and news
ECA Industry Awards 2024 shortlist revealed
22 leading businesses from across the electrotechnical and engineering services sector.
Government unveils Skills England strategy
Skills England to transform opportunities and drive growth.
New Government Hub for York Given Planning Green Light
For up to 2,600 civil servants, due for completion by 2028.
Construction Skills Certification Scheme cards
July update on Professionally Qualified and Academically Qualified Person Cards.
BSRIA Briefing 2024, November 22
Sustainable Futures: Redefining Retrofit for Net Zero Living.
The CLC on driving competency in the retrofit sector
Previously published roadmap on skills for net zero.
The first labour government King's speech in fifteen years
Construction industry reactions, support and some concern.
CIOB Retrofit of Buildings Technical Information Sheet
What retrofit is, the approach to be taken and processes to be followed.
Adapting Historic Buildings for Energy and Carbon Efficiency
Historic England advice note 18, free download published.
10 retrofit projects revisited 10 years after completion.
Information orders, building liability orders and SPVs
Key BSA terms and how they impact special purpose vehicles.
Listed despite problems with its design.
Zen and the art of cycling exploration.
Design Council Homes Taskforce launched
To support government 1.5 million homes target within UK climate commitments.