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Inconsistency between a criterion and the initial conditions

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  • Bazhanov, Andrei

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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Bibliographic Info

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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Keywords: Essential nonrenewable resource; Sustainable extraction; Criterion inconsistency; Hartwick Rule;

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References

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  1. Asheim, Geir B. & Buchholz, Wolfgang & Hartwick, John M. & Mitra, Tapan & Withagen, Cees, 2007. "Constant savings rates and quasi-arithmetic population growth under exhaustible resource constraints," Journal of Environmental Economics and Management, Elsevier, vol. 53(2), pages 213-229, March.
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  3. Chichilnisky, Graciela, 1995. "An axiomatic approach to sustainable development," MPRA Paper 8609, University Library of Munich, Germany.
  4. Davis, Graham A & Cairns, Robert D, 1999. "Valuing Petroleum Reserves Using Current Net Price," Economic Inquiry, Western Economic Association International, vol. 37(2), pages 295-311, April.
  5. Bazhanov, Andrei, 2007. "Switching to a sustainable efficient extraction path," MPRA Paper 2976, University Library of Munich, Germany.
  6. Bazhanov, Andrei, 2006. "Decreasing of Oil Extraction: Consumption behavior along transition paths," MPRA Paper 469, University Library of Munich, Germany.
  7. Grimaud, André & Rougé, Luc, 2003. "Polluting Non-Renewable Resources, Innovation and Growth : Welfare and Environmental Policy," IDEI Working Papers 206, Institut d'Économie Industrielle (IDEI), Toulouse.
  8. Bazhanov, Andrei V., 2007. "The transition to an oil contraction economy," Ecological Economics, Elsevier, vol. 64(1), pages 186-193, October.
  9. B. Caillaud & R. Guesnerie & P. Rey & J. Tirole, 1988. "Government Intervention in Production and Incentives Theory: A Review of Recent Contributions," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 1-26, Spring.
  10. Hamilton, Kirk & Ruta, Giovanni & Tajibaeva, Liaila, 2005. "Capital accumulation and resources depletion - a Hartwick rule counterfactual," Policy Research Working Paper Series 3480, The World Bank.
  11. Bazhanov, Andrei, 2006. "The peak of oil extraction and a modified maximin principle," MPRA Paper 14775, University Library of Munich, Germany, revised 12 Feb 2007.
  12. Pearce, David W. & Atkinson, Giles D., 1993. "Capital theory and the measurement of sustainable development: an indicator of "weak" sustainability," Ecological Economics, Elsevier, vol. 8(2), pages 103-108, October.
  13. Bazhanov, Andrei, 2007. "The peak of oil extraction and consistency of the government's short- and long-run policies," MPRA Paper 2507, University Library of Munich, Germany.
  14. Gérard Gaudet, 2007. "Natural resource economics under the rule of Hotelling," Canadian Journal of Economics, Canadian Economics Association, vol. 40(4), pages 1033-1059, November.
  15. Poterba, James M, 1988. "Are Consumers Forward Looking? Evidence from Fiscal Experiments," American Economic Review, American Economic Association, vol. 78(2), pages 413-18, May.
  16. Hartwick, John M, 1977. "Intergenerational Equity and the Investing of Rents from Exhaustible Resources," American Economic Review, American Economic Association, vol. 67(5), pages 972-74, December.
  17. Bazhanov, Andrei, 2005. "Variation principles for modeling in resource economics," MPRA Paper 1309, University Library of Munich, Germany, revised 08 Aug 2006.
  18. Karp, Larry & Livernois, John, 1992. "On efficiency-inducing taxation for a non-renewable resource monopolist," Journal of Public Economics, Elsevier, vol. 49(2), pages 219-239, November.
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Cited by:
  1. Andrei V. Bazhanov, 2008. "Maximin-optimal sustainable growth with nonrenewable resource and externalities," EERI Research Paper Series EERI_RP_2008_11, Economics and Econometrics Research Institute (EERI), Brussels.

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