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Inconsistency between a criterion and the initial conditions

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Author Info
Bazhanov, Andrei

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Abstract

What if an unsustainable economy decides to switch in finite time to a sustainable path of a nonrenewable resource extraction which is optimal with respect to some criterion? We consider this problem on the example of the Dasgupta-Heal-Solow-Stiglitz model (DHSS) using constant consumption over time as a criterion. It turns out that if the criterion has no connections with the "opportunities" of the economy (initial conditions) then the resulting "optimal" path of consumption can be inferior to the one along some sub-optimal sustainable paths of extraction calibrated on the original initial conditions. In our case we have obtained under the standard Hartwick Rule bounded and unbounded growth of consumption along these sub-optimal paths.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6792.

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Date of creation: 02 Jan 2008
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Handle: RePEc:pra:mprapa:6792

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Related research
Keywords: Essential nonrenewable resource Sustainable extraction Criterion inconsistency Hartwick Rule

Find related papers by JEL classification:
Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)

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  5. A. Dixit & P. Picard, 2002. "On the Role of Good Faith in Insurance Contracting," Princeton Economic Theory Working Papers 26c6897fd1cd46f8f39ffb6ca, UCLA Department of Economics. [Downloadable!]
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  1. Bazhanov, Andrei, 2008. "Maximin-optimal sustainable growth with nonrenewable resource and externalities," MPRA Paper 9510, University Library of Munich, Germany, revised 02 Jul 2008. [Downloadable!]
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