Free Essay On Contrast Of Views Of Solow And Adelman

Solow's article discusses the issue of optimal social management of stock of non-renewable essential resources based on the Hotelling model. He explains that resources cannot increase over time. They only decrease due to continuous consumption. In rare cases, the natural resources remain the same when they are not consumed. As much as recycling helps to save the resources, it is not possible to get the initial amount. Solow (12) that some is lost in the entire process.
Adelman's article, on the other hand, is based on investment and production. The statement that oil prices have been rising all through the years is typical. However, the underlying explanations differ from person to person. Some argue that the oil prices have been declining and expect the oil prices to keep getting lower. The falling prices are explained by an observation over the years of the economic trend. Comparisons of oil prices have also been compared to the trends of other items and commodities in the market (Adelman, 10).
According to Solow (14), when all assets in a particular risk class earn the same rates of returns, some being current dividends and others being capital gain, it is only then that asset markets can be in equilibrium. For a particular risk class, the typical rates of returns are the interest rates. For resource deposits, so long as they stay on the ground, they have no dividends. The value of a fund deposit must be growing at an equal rate to the interest rate, and that is how equilibrium is achieved whereas according to Adelman, any unit of an inventory is an asset. Value and replacement cost are related though in the short-run they need not be equal. Using price, cost, and the rate of interest, it is possible to show the optimal investment and reservoir's depletion rate (Adelman, 19).
Therefore from Solow's concept, the resource's production cost, extraction costs among other forms of loss affect a resource's net price. Just like in any other market, once there is a high demand for a particular resource, its price goes up, when there is much supply in the market and demand goes down, the price of the resource goes down. In the short run, a company or an individual will make supernormal profits and losses. However, over the long term, only a sensible profit is made. The large profits and losses cancel out to make only the required profit (Solow, 11).
The investment will initially be expensive but in the overall, it will be cheaper. Making and making the reservoirs will be costly. However, it determines that more oil stored at any given time. The reduction of petroleum shortages means that there will always be enough supply to meet the demand. It will help to reduce the rise in fuel prices. The investment and production method contribute to keeping the prices controlled at all times, and when there is a surplus, there will be a reduction in the fuel prices (Adelman, 19).

Works cited

The American Economic Review, Vol. 64, No. 2, Papers and Proceedings of the Eighty-sixth Annual Meeting of the American Economic Association. (May, 1974), pp. 1-14.
The Review of Economics and Statistics, Vol. 72, no. 1, MIT Press. (Feb, 1990), pp. 1-18