Hotelling’s Rule & Your Life
This month I happened to lecture about a basic management model for non-renewable resources, what is known as the Hotelling’s Rule (not to confuse with Hotelling’s Law). Driving my car (you’ll probably find more posts which have been conceived there) it came to my mind the idea about what’s the most scarce non-renewable natural resource: your own life.
It’s easy to apply, since it simply explains an optimal path for pricing the resource (wow, how do you price your life?: if we should assume the wrong equality price=value, then economics has sorted this out).
So, we are done; Hotelling (1931) gave us a solution:
where P’(t) is the marginal price at time t, and delta is a discount rate; stating that the percentage increase of your life’s price should equal your prefered interest rate (should this be a risk-free rate, the legal interest rate, or just a delusion rate?).
Caveats in the application of such a model are evident, starting with the unavailability of a bank for life (work and the marxist theory?), the ethics behind life valuing, and the almost mission imposible to get empirical data in order to verify the model (scientific method). Moreover, probably someone will come with the fisheries model, a basic model employed to explain how to manage renewable resources. That’s because you think life is actually a renewable natural resource. We open the debate!.
