Bubbles in Prices of Exhaustible Resources
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.
I thank Peter Rousseau and Victor Tsyrennikov for discussion and for helping organize the data. Thanks also to David Ashmore at Liquid Assets, Simon Berry, Guillaume Daudin, Pete Duffy, Lynda McLeod at Christies Archives, Ana Maria Santacreu and Alan Taylor-Restell for help with the data, Orley Ashenfelter, Robert Bohr, Dennis Foley, Lu Han, Hiroyuki Kasahara, John Leahy, Steven LeRoy, Robert Lucas, Alejandro Rodriguez, Manuel Santos, Chris Shipley, Larry Stone, Ivan Werning and Michael Woodford for comments, and the NSF for support. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Bubbles in Prices of Exhaustible Resources Boyan Jovanovic New York University - Department of Economics February 2013 International Economic Review, Vol. 54, Issue 1, pp. 1-34, 2013 DOI: 10.1111/iere.12000 citation courtesy of