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Inefficiency and Sustainability

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  • Bazhanov, Andrei

Abstract

This paper examines the effects of ignored inefficiencies on the reliability of sustainability indicators and effectiveness of investment in resource-based economies. A model of a social planner does not include some phenomena that may influence the path of utility. These unspecified phenomena may cause inefficiency of the economy. In order to simulate this natural discrepancy between theory and real life, this study assumes that the planner applies the policies developed for an efficient (undistorted) model, whereas the real economy is distorted by some neglected effects that can influence utility, production, the balance equation, and the dynamics of the natural reserve. The resulting inefficiency affects the dependence of current utility change on investment. The analysis shows that, for sustainability in the presence of inefficiency, first, changes in institutions and in the patterns of resource extraction may become more important than investments; and secondly, it is preferable to underextract a natural resource under uncertainties in production possibilities and damages from economic activities. An inadequate accounting system, misestimated production possibilities, and insecure property rights are considered as examples of disregarded inefficiencies.

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  • Bazhanov, Andrei, 2013. "Inefficiency and Sustainability," MPRA Paper 51815, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:51815
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    Cited by:

    1. Bazhanov, Andrei V., 2022. "Extraction path and sustainability," Resources Policy, Elsevier, vol. 76(C).
    2. Ari, Ibrahim & Akkas, Erhan & Asutay, Mehmet & Koç, Muammer, 2019. "Public and private investment in the hydrocarbon-based rentier economies: A case study for the GCC countries," Resources Policy, Elsevier, vol. 62(C), pages 165-175.
    3. Bazhanov, Andrei, 2018. "Difficulties in the forecasting of iron ore price: a review," MPRA Paper 87881, University Library of Munich, Germany, revised 12 Jul 2018.
    4. Yu, Yun & Lei, Yalin, 2017. "China's provincial exhaustible resources rent and produced capital stock—Based on Hartwick's rule," Resources Policy, Elsevier, vol. 52(C), pages 114-121.
    5. Zhou, Dequn & Chong, Zhaotian & Wang, Qunwei, 2020. "What is the future policy for photovoltaic power applications in China? Lessons from the past," Resources Policy, Elsevier, vol. 65(C).
    6. Yong Tan & Mike G. Tsionas, 2022. "Modelling sustainability efficiency in banking," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(3), pages 3754-3772, July.
    7. Bazhanov, Andrei V., 2022. "A comment on Hamilton (2016) “Measuring sustainability in the UN System of Environmental-Economic Accounting”," Resources Policy, Elsevier, vol. 76(C).

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    More about this item

    Keywords

    Dynamic inefficiency; Investment; Natural resource; Sustainability;
    All these keywords.

    JEL classification:

    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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