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Pareto Optimality in the Extraction of Fossil Fuels and the Greenhouse Effect: A Note

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  • Hans-Werner Sinn

Abstract

This note generalizes the Solow-Stiglitz efficiency condition for natural resources to the problem of fossil fuel extraction with a greenhouse effect. The generalized optimality condition suggests that the greenhouse effect implies overextraction in the sense of leaving future generations a wrongly composed wealth portfolio with too few natural resources relative to man-made capital. This judgment is independent of society's ethical preferences concerning the well-being of future generations.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13453.

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Date of creation: Sep 2007
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Handle: RePEc:nbr:nberwo:13453

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  1. Long, Ngo Van, 1975. "Resource extraction under the uncertainty about possible nationalization," Journal of Economic Theory, Elsevier, vol. 10(1), pages 42-53, February.
  2. Fisher, Anthony C & Krutilla, John V, 1975. "Resource Conservation, Environmental Preservation, and the Rate of Discount," The Quarterly Journal of Economics, MIT Press, vol. 89(3), pages 358-70, August.
  3. Cees Withagen, 1995. "Pollution, abatement and balanced growth," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 5(1), pages 1-8, January.
  4. John Quiggin & John Horowitz, 2003. "Costs of adjustment to climate change," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 47(4), pages 429-446, December.
  5. Robert T. Deacon & Henning Bohn, 2000. "Ownership Risk, Investment, and the Use of Natural Resources," American Economic Review, American Economic Association, vol. 90(3), pages 526-549, June.
  6. Konrad Kai A. & Olsen Trond E. & Schob Ronnie, 1994. "Resource Extraction and the Threat of Possible Expropriation: The Role of Swiss Bank Accounts," Journal of Environmental Economics and Management, Elsevier, vol. 26(2), pages 149-162, March.
  7. Kolstad, Charles D. & Krautkraemer, Jeffrey A., 1993. "Natural resource use and the environment," Handbook of Natural Resource and Energy Economics, in: A. V. Kneese† & J. L. Sweeney (ed.), Handbook of Natural Resource and Energy Economics, edition 1, volume 3, chapter 26, pages 1219-1265 Elsevier.
  8. R. M. Solow, 1973. "Intergenerational Equity and Exhaustable Resources," Working papers 103, Massachusetts Institute of Technology (MIT), Department of Economics.
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Cited by:
  1. Hans-Werner Sinn, 2008. "Das grüne Paradoxon: Warum man das Angebot bei der Klimapolitik nicht vergessen darf," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 9(s1), pages 109-142, 05.
  2. Alfred Endres, 2008. "Ein Unmöglichkeitstheorem für die Klimapolitik?," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 9(3), pages 350-382, 08.
  3. Hans-Werner Sinn, 2007. "Public Policies against Global Warming," CESifo Working Paper Series 2087, CESifo Group Munich.
  4. Sinn, Hans-Werner, 2008. "Public policies against global warming: A supply side approach," Munich Reprints in Economics 19638, University of Munich, Department of Economics.
  5. Strand, Jon, 2010. "Optimal fossil-fuel taxation with backstop technologies and tenure risk," Energy Economics, Elsevier, vol. 32(2), pages 418-422, March.
  6. Duncan Foley & Lance Taylor & Armon Rezai, 2013. "The Social Cost of Carbon Emissions," INET Research Notes 28, Institute for New Economic Thinking (INET).
  7. Kögel, Tomas, 2011. "The social cost of carbon on an optimal balanced growth path," Economics Discussion Papers 2011-35, Kiel Institute for the World Economy.
  8. Armon Rezai, 2011. "The Opportunity Cost of Climate Policy: A Question of Reference," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113(4), pages 885-903, December.
  9. Foley, Duncan K. & Rezai, Armon & Taylor, Lance, 2013. "The social cost of carbon emissions: Seven propositions," Economics Letters, Elsevier, vol. 121(1), pages 90-97.

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