Adelman's rule and the petroleum firm

Observing that net prices do not rise as predicted and that resource stocks are not Free, Adelman questions Hotelling's model of an exhaustible resour ce. He cites a rule of thumb for valuing oil reserves which is about one-ha lf that given by the Hotelling valuation principle. We apply an optimizatio n model to a stylized characterization of an oil reservoir. Adelman's valua tion rule is confirmed. An r-percent rule emerges as well, but it is not Ho telling's rule. We end the paper with our interpretation of Hotelling's rul e. We also consider the role of investment in augmenting the quantities of a resource currently extracted.