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The Under‐Exploitation of Natural Resources: A Model with Overlapping Generations

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  • MURRAY C. KEMP
  • NGO VAN LONG

Abstract

It is well known that competitive markets may fail to generate an optimal rate of extraction of a natural resource‐stock. The barrier to optimality may be uncertainty about tenure, commonality of property rights in the resource, or uncertainty about the extent of the resource. In all these cases, suboptimality takes the form of over‐extraction. We draw attention to an additional source of suboptimality. In an economy with overlapping generations, the resource‐stock plays the double role of repository of savings and source of productive inputs. The decline in the supply of the resource‐stock may eventually force its price so high that it ceases to perform its second function. Extraction comes to an end even though the resource has a positive marginal productivity in producing consumption goods. This is inefficient, hence suboptimal. This time, however, suboptimality takes the form of under‐extraction.

Suggested Citation

  • Murray C. Kemp & Ngo Van Long, 1979. "The Under‐Exploitation of Natural Resources: A Model with Overlapping Generations," The Economic Record, The Economic Society of Australia, vol. 55(3), pages 214-221, September.
    • Handle: RePEc:bla:ecorec:v:55:y:1979:i:3:p:214-221
    DOI: 10.1111/j.1475-4932.1979.tb02223.x
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    References listed on IDEAS

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    1. Gale, David, 1973. "Pure exchange equilibrium of dynamic economic models," Journal of Economic Theory, Elsevier, vol. 6(1), pages 12-36, February.
    2. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66(6), pages 467-467.
    3. Kemp, Murray C, 1973. "Trade Gains in a Pure Consumption-Loan Model," Australian Economic Papers, Wiley Blackwell, vol. 12(20), pages 124-126, June.
    4. Long, Ngo Van, 1975. "Resource extraction under the uncertainty about possible nationalization," Journal of Economic Theory, Elsevier, vol. 10(1), pages 42-53, February.
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    2. Koskela, E. & Ollikainen, M. & Puhakka, M., 2000. "Saddles, Indeterminacy and Bifurcations in an Overlapping Generations Economy with a Renewable Resource," University of Helsinki, Department of Economics 476, Department of Economics.
    3. Yew-Kwang Ng, 2004. "Sustainable development: a problem of environmental disruption now instead of intertemporal ethics," Sustainable Development, John Wiley & Sons, Ltd., vol. 12(3), pages 150-160.
    4. David Desmarchelier & Rémi Girard, 2023. "Renewable resource and harvesting cost in a simple monetary overlapping generation economy," Revue d'économie industrielle, De Boeck Université, vol. 0(4), pages 147-171.
    5. David Desmarchelier & Alexandre Mayol, 2022. "To seed, or not to seed? An endogenous labor supply approach in a simple overlapping generation economy," Bulletin of Economic Research, Wiley Blackwell, vol. 74(1), pages 25-38, January.
    6. Xavier Pautrel, 2012. "Pollution, Private Investment in Healthcare, and Environmental Policy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(2), pages 334-357, June.
    7. David DESMARCHELIER & Alexandre MAYOL, 2020. "To seed, or not to seed," Working Papers of BETA 2020-04, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    8. Koskela, Erkki & Ollikainen, Markku & Puhakka, Mikko, 2002. "Renewable Resources in an Overlapping Generations Economy Without Capital," Journal of Environmental Economics and Management, Elsevier, vol. 43(3), pages 497-517, May.
    9. Birgit Bednar-Friedl & Karl Farmer, 2013. "Time consuming resource extraction in an overlapping generations economy with capital," Journal of Economics, Springer, vol. 110(3), pages 203-224, November.
    10. Gregory Amacher & Markku Ollikainen & Mikko Puhakka, 2018. "Renewable Resource Use and Nonseparable Amenity Benefits," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 69(4), pages 637-659, April.
    11. Bo Zhang & Zhixiang Zhang, 2025. "Efficiency in Overlapping Generations Economies with Natural Resources," Annals of Economics and Finance, Society for AEF, vol. 26(2), pages 765-823, November.
    12. Erkki Koskela & Markku Ollikainen & Mikko Puhakka, 2008. "SaddleS and BifurcationS in an Overlapping GenerationS Economy with a Renewable Resource," Finnish Economic Papers, Finnish Economic Association, vol. 21(1), pages 3-21, Spring.

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