ABSTRACT
In 1931, dynamic efficiency, as developed by Harold Hotelling, is the appropriate foundation for efficiency when it is necessary to consider allocation over time. Energy producers may find it profitable to reduce or eliminate price uncertainty through the use of derivatives, financial instruments derived from the value of the underlying commodity. Renewable resources can be divided into two categories: nondepletable and depletable. Solar and wind energy fit the renewable, nondepletable category so the static analysis is sufficient to understand their usage. Dynamic analysis and Hotelling's rule show that even competitive producers have a built-in incentive to conserve because they can earn a higher price as future supplies diminish. Dynamic efficiency is an appropriate framework for analyzing the optimal use of finite nonrenewable resources such as oil, where production today reduces the availability of the resource in the future.
