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Inefficiency and sustainability

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  • Bazhanov, Andrei V.

Abstract

Sustainability goals of a social planner in an inefficient economy may require a wider range of tools than prescribed by a model that assumes dynamic efficiency. The need for additional tools can be shown by considering both the planner׳s model and a more comprehensive one that imitates real life. A new tool is necessary if the level of inefficiency, resulting from the discrepancy between the model and “real life”, can undermine any feasible effort advised by the planner׳s model. This study assumes that the planner applies the policies developed for a simple model, whereas the real economy is distorted by neglected effects that influence utility, production, the balance equation, and the dynamics of the natural resource stock. The resulting inefficiency affects the dependence of current utility change on investment. The analysis shows that a prescription for sustainability requires estimation of possible inefficiencies and coordination of genuine investment with inefficiency-reducing policies, including changes in accounting systems and institutions.

Suggested Citation

  • Bazhanov, Andrei V., 2015. "Inefficiency and sustainability," Resources Policy, Elsevier, vol. 45(C), pages 210-216.
  • Handle: RePEc:eee:jrpoli:v:45:y:2015:i:c:p:210-216
    DOI: 10.1016/j.resourpol.2015.05.001
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    Keywords

    Natural resource; Dynamic inefficiency; Genuine investment; Resource policy; Sustainable development;

    JEL classification:

    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • 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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