The Optimal Depletion Of Exhaustible Resources: A Complete Characterization
AbstractWe provide the closed form solution to the Dasgupta-Heal-Solow-Stiglitz (DHSS) model. The DHSS model is based on the seminal articles Dasgupta and Heal (Rev. Econ. Stud., 1974), Solow (Rev. Econ. Stud., 1974) and Stiglitz (Rev. Econ. Stud., 1974) and describes an economy with two assets, man-made capital and a nonrenewable resource stock. We explicitly characterize, for such an economy, the dynamics along the optimal trajectory of all the variables in the model and from all possible initial values of the stocks. We use the analytical solution to prove several properties of the optimal consumption path. In particular, we show that the initial consumption under a utilitarian criterion starts below the maximin rate of consumption if and only the resource is abundant enough and that under a utilitarian criterion, it is not necessarily the present generation that benefits most from a windfall of resources.
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Bibliographic InfoPaper provided by McGill University, Department of Economics in its series Departmental Working Papers with number 2010-01.
Length: 28 pages
Date of creation: Jan 2010
Date of revision:
Other versions of this item:
- Benchekroun, Hassan & Withagen, Cees, 2011. "The optimal depletion of exhaustible resources: A complete characterization," Resource and Energy Economics, Elsevier, vol. 33(3), pages 612-636, September.
- BENCHEKROUN, Hassan & WITHAGEN, Cees, 2010. "The Optimal Depletion of Exhaustible Resources : A Complete Characterization," Cahiers de recherche 04-2010, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- E20 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
- Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General
- C65 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Miscellaneous Mathematical Tools
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-04 (All new papers)
- NEP-DGE-2010-04-04 (Dynamic General Equilibrium)
- NEP-ENE-2010-04-04 (Energy Economics)
- NEP-ENV-2010-04-04 (Environmental Economics)
- NEP-MAC-2010-04-04 (Macroeconomics)
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