ABSTRACT
Nordhaus (1973) does have important implications in energy policy. Nordhaus develops a general equilibrium model to determine the path of prices of energy resources and efficiently allocate four main energy resources (petroleum, coal, natural gas, and uranium-235) over time, space and different energy demand categories. Additionally, he explores whether the resulting optimal price paths are close to market-determined ones. His formulation of the model follows a standard dynamic optimization problem; and thus the price paths associated with his optimal solution (shadow prices for resources over time) are interpreted as rents that a competitive market would impute to scarce resources (Hotelling’s Rule). The main empirical conclusion of the paper is that the calculated prices are not very far from the actual market ones, with the exception of petroleum products and coal.
