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Wealth and sustainability

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  • Kirk Hamilton
  • John Hartwick

Abstract

For economists in 1974, it was a live question whether the exhaustion of natural resources, such as oil, would necessarily lead to the decline of economic activity. Solow showed that constant levels of consumption could be sustained in the face of exhaustibility if there is sufficient substitutability between produced and natural factors of production. Hartwick then proved that underpinning this result is a saving rule—set investment in produced capital equal to the value of resource depletion at each point in time. A large literature has shown that a comprehensive measure of the change in real wealth—net saving—plays a central role in determining whether current well-being can be sustained. In particular, current declines in real wealth signal that future well-being will also decline, a result that has been confirmed empirically using data for developing countries. Changes in wealth and sustainability are therefore joined at the hip. The current composition of wealth serves to define the policy challenges that countries face in achieving sustainable development. If substitution possibilities are limited between natural and other factors of production, as one might expect, then technical progress is a necessary complement to policies for sustainability.

Suggested Citation

  • Kirk Hamilton & John Hartwick, 2014. "Wealth and sustainability," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 30(1), pages 170-187.
    • Handle: RePEc:oup:oxford:v:30:y:2014:i:1:p:170-187.
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    File URL: http://hdl.handle.net/10.1093/oxrep/gru006
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    Cited by:

    1. Giles Atkinson & Kirk Hamilton, 2016. "Asset accounting, fiscal policy and the UK’s oil and gas resources, past and future," GRI Working Papers 250, Grantham Research Institute on Climate Change and the Environment.
    2. van Krevel, Charan, 2021. "Does natural capital depletion hamper sustainable development? Panel data evidence," Resources Policy, Elsevier, vol. 72(C).
    3. Sukrit Vinayavekhin & Feng Li & Aneesh Banerjee & Andrea Caputo, 2023. "The academic landscape of sustainability in management literature: Towards a more interdisciplinary research agenda," Business Strategy and the Environment, Wiley Blackwell, vol. 32(8), pages 5748-5784, December.
    4. Partha Sen, 2020. "Macroeconomics and the Environment: A Selective Survey," CESifo Working Paper Series 8159, CESifo.
    5. Addicott, Ethan T. & Fenichel, Eli P., 2019. "Spatial aggregation and the value of natural capital," Journal of Environmental Economics and Management, Elsevier, vol. 95(C), pages 118-132.
    6. Roman, Philippe & Thiry, Géraldine, 2016. "The inclusive wealth index. A critical appraisal," Ecological Economics, Elsevier, vol. 124(C), pages 185-192.
    7. Sugiawan, Yogi & Kurniawan, Robi & Managi, Shunsuke, 2019. "Are carbon dioxide emission reductions compatible with sustainable well-being?," Applied Energy, Elsevier, vol. 242(C), pages 1-11.
    8. Atkinson, Giles & Hamilton, Kirk, 2020. "Sustaining wealth: Simulating a sovereign wealth fund for the UK's oil and gas resources, past and future," Energy Policy, Elsevier, vol. 139(C).
    9. Ben Groom & Zachary Turk, 2021. "Reflections on the Dasgupta Review on the Economics of Biodiversity," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 79(1), pages 1-23, May.
    10. Stefanie Onder, 2024. "Comment on "Tracing Sustainability in the Long Run Genuine Savings Estimates 1850–2018"," NBER Chapters, in: Measuring and Accounting for Environmental Public Goods: A National Accounts Perspective, National Bureau of Economic Research, Inc.
    11. Atkinson, Giles & Hamilton, Kirk, 2020. "Sustaining wealth: simulating a sovereign wealth fund for the UK’s oil and gas resources, past and future," LSE Research Online Documents on Economics 103564, London School of Economics and Political Science, LSE Library.
    12. Yun, Seong Do & Hutniczak, Barbara & Fenichel, Eli P. & Abbott, Joshua K., 2016. "The Wealth of Ecosystems:Valuing Natural Capital in the Context of Ecosystem Based Management," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235737, Agricultural and Applied Economics Association.
    13. Eli P Fenichel & Yukiko Hashida, 2019. "Choices and the value of natural capital," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 35(1), pages 120-137.

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