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Accounting Price of an Exhaustible Resource: Response and Extensions

Author

Listed:
  • Kirk Hamilton

    (London School of Economics and Political Science)

  • Giovanni Ruta

    (The World Bank)

Abstract

Wei (Environ Resour Econ 60:579–581, 2015) presents a novel derivation of the accounting price for an exhaustible resource in a non-optimal economy subject to an allocation mechanism. We show that Wei (2015) and Hamilton and Ruta (Environ Resour Econ 42:53–64, 2009) are in fact employing different and mutually exclusive allocation mechanisms for the economy, and this explains the differences between the respective accounting prices. Because accounting prices must be defined subject to the allocation mechanism for the economy, the prices derived in the two papers are equally valid within their respective allocation domains. Further analysis shows that if there is declining marginal product of factors, a ‘Hartwick investment rule’ for the model economy (set investment just equal to depletion, valued at the accounting price) will lead to declining consumption for the Wei (2015) accounting price, and increasing consumption for the Hamilton and Ruta (2009) accounting price. This result is extended to consider the accounting standards recommended in the UN SEEA (System of environmental-economic accounting 2012: central framework. United Nations, European Commission, Food and Agriculture Organization of the United Nations, International Monetary Fund, Organisation for Economic Co-operation and Development, World Bank, 2012), as well as accounting for environmental externalities from resource use.

Suggested Citation

  • Kirk Hamilton & Giovanni Ruta, 2017. "Accounting Price of an Exhaustible Resource: Response and Extensions," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 68(3), pages 527-536, November.
    • Handle: RePEc:kap:enreec:v:68:y:2017:i:3:d:10.1007_s10640-016-0030-6
    DOI: 10.1007/s10640-016-0030-6
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    References listed on IDEAS

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    1. Kirk Hamilton & John Hartwick, 2005. "Investing exhaustible resource rents and the path of consumption," Canadian Journal of Economics, Canadian Economics Association, vol. 38(2), pages 615-621, May.
    2. 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.
    3. Taoyuan Wei, 2015. "Accounting Price of an Exhaustible Resource: A Comment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 60(4), pages 579-581, April.
    4. Hartwick, John M, 1977. "Intergenerational Equity and the Investing of Rents from Exhaustible Resources," American Economic Review, American Economic Association, vol. 67(5), pages 972-974, December.
    5. Kirk Hamilton & John M. Hartwick, 2005. "Investing exhaustible resource rents and the path of consumption," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 38(2), pages 615-621, May.
    6. Kirk Hamilton, 2016. "Measuring Sustainability in the UN System of Environmental-Economic Accounting," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 64(1), pages 25-36, May.
    7. Dasgupta, Partha & Mã„Ler, Karl-Gã–Ran, 2000. "Net national product, wealth, and social well-being," Environment and Development Economics, Cambridge University Press, vol. 5(1), pages 69-93, February.
    8. Kirk Hamilton & Giovanni Ruta, 2009. "Wealth Accounting, Exhaustible Resources and Social Welfare," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 42(1), pages 53-64, January.
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    Cited by:

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    More about this item

    Keywords

    Exhaustible resource; Accounting price; Resource depletion; Hartwick rule; Environmental externality;
    All these keywords.

    JEL classification:

    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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