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Intergenerational Equity and the Investment of Rents from Exhaustible Resources in a Two Sector Model

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  • John Hartwick

Abstract

Among efficient paths of growth in a one sector model with inputs of reproducible capital services and flows from an exhaustible resource, the one generated with the savings-investment rule - invest all current resource rents and only these rents - results in a consumption constant. For a fixed population, we can label such a path as one displaying intergenerational equity. We now establish this result in a two sector model with the same inputs plus labor - one sector producing consumption goods and one investment goods. The role of capital gains on reproducible capital as relative prices of consumption and investment goods change over time. We use a general "Hotelling Rule" which incorporates these relative price effects.

Suggested Citation

  • John Hartwick, 1977. "Intergenerational Equity and the Investment of Rents from Exhaustible Resources in a Two Sector Model," Working Paper 281, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:281
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