Sustainable growth: Compatibility between criterion and the initial state

Bazhanov, Andrei (2008): Sustainable growth: Compatibility between criterion and the initial state.

Abstract

There is a large body of research devoted to our understanding of sustainable growth in resource based economies. Some of this research is inapplicable to the real economy. This is a result of inconsistency between the commonly used criteria and the initial state of the real economy. The inconsistency can lead to either inferior, unsustainable, or nonexistent optimal paths of consumption per capita if the criterion is not linked to the initial state. We demonstrate this in a model of the Dasgupta-Heal-Solow-Stiglitz variety with the constant consumption per capita as a benchmark criterion. Our results show that the inconsistency in this case can imply Pareto inferior paths of consumption per capita.

• Item Type: MPRA Paper
• Language: English
• Keywords: essential nonrenewable resource; sustainable extraction; criterion inconsistency; Hartwick Rule
• Subjects: Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation > Q32 - Exhaustible Resources and Economic Development; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation > Q38 - Government Policy; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O13 - Agriculture ; Natural Resources ; Energy ; Environment ; Other Primary Products

References

Asheim, G.B., Buchholz, W., Hartwick J.M., Mitra T., Withagen C., 2007. Constant savings rates and quasi-arithmetic population growth under exhaustible resource constraints. J. Environ. Econ. Manage. 53, 213-229.

Bazhanov, A.V., 2006. Variatsionnye printsipy modelirovaniya v resursnoj economike (Variation principles for modeling in resource economics). Vestnik DVO RAN 6, 5-13. MPRA Paper No. 1309. Available at: http://mpra.ub.uni-muenchen.de/1309/ (in Russian).

Bazhanov, A.V., 2007a. The peak of oil extraction and a modified maximin principle. MPRA Paper No. 2019. In: Proceedings of the International Conference "Comparative Institution and Political Economy: Theoretical, Experimental, and Empirical Analysis", Waseda University, Tokyo, pp. 99-128. Available at: http://mpra.ub.uni-muenchen.de/2019/

Bazhanov, A.V., 2007b. The peak of oil extraction and consistency of the government's short- and long-run policies. MPRA Paper No. 2507. Presented at the Seminar of School of Economics, Seoul National University, Seoul. Available at: http://mpra.ub.uni-muenchen.de/2507/

Bazhanov, A.V., 2007c. The transition to an oil contraction economy. Ecol. Econ. 64, 186-193.

Brander, J.A., 2007. Viewpoint: Sustainability: Malthus revisited? Can. J. Econ. 40, 1-38.

Caillaud, B., Guesnerie, R., Rey, P. et al., 1988. Government intervention in production and incentives theory: a review of recent contributions. RAND J. Econ. 19, 1-26.

Dasgupta, P., Heal, G., 1974. The optimal depletion of exhaustible resources. Rev. Econ. Stud. 41, 3-28.

Dasgupta, P., Heal, G., 1979. Economic theory and exhaustible resources. Cambridge University Press, Cambridge.

Davis, G.A., Cairns, R.D., 1999. Valuing petroleum reserves using current net price. Econ. Inquiry 37, 295-311.

Gaudet, G., 2007. Natural resource economics under the rule of Hotelling. Can. J. Econ. 40, 1033-1059.

Grimaud, A., Rouge, L., 2005. Polluting non-renewable resources, innovation, and growth: welfare and environmental policy. Resource Energy Econ. 27, 109-129.

Hamilton, K., Ruta, G., Tajibaeva, L., 2006. Capital accumulation and resource depletion: A Hartwick Rule counterfactual. Environ. Resource Econ. 34, 517-533.

Hartwick, J.M., 1977. Intergenerational equity and the investing of rents from exhaustible resources. Amer. Econ. Rev. 67, 972-974.

Karp, L., Livernois, J., 1992. On efficiency-inducing taxation for a non-renewable resource monopolist. J. Public Econ. 49, 219-239.

Koopmans, T.C., 1965. On the concept of optimal economic growth. In: Pontificiae Academiae Scientiarum scripta varia, 28, 225-300.

Leininger, W., 1985. Rawls' maximin criterion and time-consistency: further results. Rev. Econ. Stud. 52, 505-513.

Nordhaus, W.D., Boyer, J. (2000). Warming the world: Economic models of global warming. Cambridge, Mass.: MIT Press.

Pearce, D.W., Atkinson, G.D., 1993. Capital theory and the measurement of sustainable development: an indicator of weak sustainability. Ecol. Econ. 8, 103-108.

Pezzey, J.C.V., 2002. Sustainability policy and environmental policy. Australian National University. Economics and Environment Network Working Paper EEN0211.

Rawls, J., 1971. A theory of justice. Belknap Press of Harvard University Press, Cambridge.

Solow, R.M., 1974. Intergenerational equity and exhaustible resources. Rev. Econ. Stud. 41, 29-45.

Stiglitz, J., 1974. Growth with exhaustible natural resources: efficient and optimal growth paths. Rev. Econ. Stud. 41, 123-137.

Stollery, K.R., 1998. Constant utility paths and irreversible global warming. Can. J. Econ. 31, 730-742.