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Constant-utility paths in a resource-based economy

Bazhanov, Andrei (2010): Constant-utility paths in a resource-based economy.

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Abstract

This paper analyzes a social planner's solution in a resource-based economy under a constant-utility criterion. The utility function includes social progress in a multiplicative form. The resulting paths of consumption include the patterns of growth that are conventionally used in the literature. This approach extends conventional link between the utilitarian criterion and the maximin for the cases with finite elasticity of marginal utility. The closed form solutions, derived for the Dasgupta-Heal-Solow-Stiglitz (DHSS) model, include the result of Solow (1974) and Hartwick (1977) as a specific case. The approach is applied to an example of a distorted resource-extracting economy under the requirement for smoothness of the paths with respect to historical data.

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