Decreasing of Oil Extraction: Consumption behavior along transition paths

Bazhanov, Andrei (2006): Decreasing of Oil Extraction: Consumption behavior along transition paths.

Abstract

A normative analysis of the problem of optimal extraction of a non-renewable resource is considered. The economy depends on the essential non-renewable resource and the rate of the resource extraction increases over time. At some instant the government gradually switches to a sustainable (in sense of non-decreasing consumption over time) pattern of the resource extraction. Different approaches are offered for the construction some curves of switching to decreasing paths of the resource depletion. Consumption paths have diverse behavior patterns along these curves, including a path of unlimited growth. A new approach to the Rawlsian maximin criterion which allows for growth of consumption is offered.

• Item Type: MPRA Paper
• Language: English
• Keywords: Non-renewable resource; Intergenerational justice; Hartwick rule; Optimal path of extraction; Generalized Rawlsian criterion
• Subjects: Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation > Q38 - Government Policy; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation > Q32 - Exhaustible Resources and Economic Development

References

[1] Arrow K.J. (1973), Rawls’ Principle of Just Saving // Swedish Journal of Economics. Vol. 75, No 4. [2] Asheim G.B. (1994), Net National Product as an Indicator of Sustainability // The Scandinavian Journal of Economics. Vol. 96, No 2. [3] Asheim G.B., Buchholz W., Hartwick J.M., Mitra T., Withagen C. (2005), Constant Savings Rates and Quasi-Arithmetic Population Growth under Exhaustible Resource Constraints. CESifo Working Paper No 1573, October 2005. [4] Barberis N., Huang M. (2001), Mental Accounting, Loss Aversion, and Individual Stock Returns // Journal of Finance. Vol. 56, No. 4. [5] Castanheira M., Roland G. (2000), The Optimal Speed of Transition: A General Equilibrium Analysis // International Economic Review. Vol. 41, No 1. [6] Dasgupta P. (1974), On Some Alternative Criteria for Justice Between Generations // Journal of Public Economics. Vol. 3, No 4. [7] Dasgupta P., Heal G. (1979), Economic Theory and Exhaustible Resources. Digswell Place: Cambridge University Press. [8] Dasgupta P., Maskin E. (2005), Uncertainty and Hyperbolic Discounting // American Economic Review. Vol. 95, No. 4. [9] Duesenberry J. (1949), Income, Saving and Theory of Consumer Behavior. Cambridge MA: Harvard University Press. [10] Farmer K., Wender R. (2003), A Two-Sector Overlapping Generations Model with Heterogeneous Capital // Economic Theory. Vol. 22, No 4. [11] Fisher C., Withagen C., Toman M. (2004), Optimal Investment in Clean Production Capacity // Environmental and Resource Economics. Vol. 28, No 3. [12] Fuss M. A. The Demand for Energy in Canadian Manufacturing // Journal of Econometrics. Vol. 5, No 1. [13] Gray L.C. (1914), Rent Under the Assumption of Exhaustibility // Quarterly Journal of Economics. Vol. 28, No 3. [14] Griffin J.M., Gregory P.R. (1976), // The American Economic Review. Vol. 66, No 5. [15] Grout P. (1977), A Rawlsian Intertemporal Consumption Rule // The Review of Economic Studies. Vol. 44, No 2. [16] Halvorsen R., Ford J. (1979), Substitution among Energy, Capital and Labor Inputs in American Manufacturing. In: Advances in the Economics of Energy and Resources. Vol. 1. Ed.: R. Pindyck. Greenwich, Conn.: JAI Press. [17] Hartwick J.M. (1977), Intergenerational Equity and the Investing of Rents from Exhaustible Resources // The American Economic Review. Vol. 67, No 5. [18] Heinberg R. (2003), The Party’s Over. BC: New Society Publishers. [19] Hotelling H. (1931), The Economics of Exhaustible Resources // The Journal of Political Economy. Vol. 39, No 2. [20] Kahneman D., Varey C. (1991), Notes on the Psychology of Utility. In: Interpersonal Comparisons of Well-Being. Eds.: J. Elster and M.S. McPherson. NY: Cambridge University Press. [21] Kaganovich M. (2000), Decentralization of Intertemporal Economies with Discounted Maximin Criterion // International Economic Review. Vol. 41, No 4. [22] Kimia B.B., Frankel I., Popescu A.M. (2003), Euler Spiral for Shape Completion // International Journal of Computer Vision. Vol. 54, No 1-3. [23] Konow J. (2003), Which Is the Fairest One of All? A Positive Analysis of Justice Theories // Journal of Economic Literature. Vol. 41, No 4. [24] Kuznets S. (1946), National Product Since 1869. New York: National Bureau of Economic Research. [25] Lane J., Mitra T. (1981), On Nash Equilibrium Programs of Capital Accumulation under Altruistic Preferences // International Economic Review. Vol. 22, No 2. [26] Leininger W. (1985), Rawls’ Maximin Criterion and Time-Consistency: Further Results // The Review of Economic Studies. Vol. 52, No 3. [27] Leontief W. (1959), Time-Preference and Economic Growth: Reply // The American Economic Review. Vol.49, No 5. [28] Long N.V. (2005), Toward a Just Savings Principle. Manuscript. McGill University. [29] Long N.V. (2006), A Mixed Bentham-Rawls Criterion for Intergenerational Equity. Manuscript. McGill University. [30] Magnus J.R. (1979), Substitution between Energy and Non-Energy Inputs in the Netherlands 1950-1976 // International Economic Review. Vol. 20, No 2. [31] Nemoto K. (2005), High Oil Prices Dampening Asia-Pacific Product Demand // Oil & Gas Journal. Vol. 103, No 46. [32] Newbery D.M.G. (1981), Oil Prices, Cartels, and the Problem of Dynamic Inconsistency // The Economic Journal. Vol. 91, No 363. [33] Nordhaus W.D., Tobin J. (1972), Is Economic Growth Obsolete? In: Economic Growth, 5th Anniversary Colloquium, V, National Bureau of Economic Research, New York. [34] Nordhaus W.D. (1993), Rolling the ’DICE’: An Optimal Transition Path for Controlling Greenhouse Gases // Resource and Energy Economics. Vol. 15, No 1. [35] Phelps E.S., Riley J.G. (1978), Rawlsian Growth: Dynamic Programming of Capital and Wealth for Intergeneration “Maximin” Justice // The Review of Economic Studies. Vol. 45, No 1. [36] Pindyck R.S. (1979), Interfuel Substitution and the Demand for Energy: An International Comparison // Review of Economics and Statistics. Vol. 61, No 2. [37] Poterba J. (1988), Are Consumers Forward Looking? Evidence from Fiscal Experiments // The American Economic Review. Vol. 78, No 2. [38] Rawls J. (1971), A Theory of Justice. Cambridge: Belknap Press of Harvard University Press. [39] Rawls J. (2001), Justice as Fairness. Cambridge: Belknap Press of Harvard University Press. [40] Rawls J. (2005), Political Liberalism. NY: Columbia University Press. [41] Scanlon T.M. (1991), The Moral Basis of Interpersonal Comparisons. In: Interpersonal Comparisons of Well-Being. Eds.: J. Elster and M.S. McPherson. Cambridge: Cambridge University Press. [42] Sen A.K. (1982), Equality of What? In: Choice, Wefare and Measurement. Cambridge MA: MIT Press, pp. 353-372. [43] Solow R.M. (1974), Intergenerational Equity and Exhaustible Resources // The Review of Economic Studies. Vol. 41. Symposium on the Economics of Exhaustible Resources. [44] Stiglitz J.E. (1974), Growth with exhaustible natural resources: efficient and optimal growth paths // The Review of Economic Studies. Vol. 41. Symposium on the Economics of Exhaustible Resources. [45] Stollery K.R. (1991), Capital-Resource Substitution and the Discount Effect in Depletable Resources // Southern Economic Journal. Vol. 58. No 2. [46] Strotz R.H. (1955), Myopia and inconsistency in dynamic utility maximization // Review of Economic Studies. Vol. 23, No 3.