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Intergenerational Conflicts and the Resource Policy Formation of a Short-Lived Government

  • Uk Hwang
  • Francesco Magris

This paper studies the political economy of resource management in an OLG framework with an intertemporal externality problem. The externality arises because a common resource used for production is depleted by production of "dirty" goods. An intergenerational conflict arises because the young generation cares about the level of current production of dirty goods. This is so because production of dirty goods affects the future availability of the resource. The old, on the other hand, has no such a concern. We assume that they lobby the government to affect the policy choice - an upper limit on the resource use allowed for production of dirty goods - in their favour. Within a dynamic common agency framework, we study stationary equilibria focussing on a particular class of strategies which we called "Take It or Leave It"(TIOLI) strategies, where a lobby makes a positive contribution only when her payoff maximising policy is implemented. It is shown that political competition may lead to a "greener" environment policy and to less resource exploitation than in an unregulated economy. More surprisingly, we also find that resource exploitation may be lower in political equilibrium than in an economy run by a social planner.

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Article provided by Swiss Society of Economics and Statistics (SSES) in its journal Swiss Journal of Economics and Statistics.

Volume (Year): 141 (2005)
Issue (Month): III (September)
Pages: 437-457

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Handle: RePEc:ses:arsjes:2005-iii-6
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  1. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-50, September.
  2. Dirk Bergemann & Juuso Valimaki, 1998. "Dynamic Common Agency," Discussion Papers 1259, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Howarth, Richard B, 1998. " An Overlapping Generations Model of Climate-Economy Interactions," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(3), pages 575-91, September.
  4. Georg Kirchsteiger & Andrea Prat, 2001. "Inefficient equilibria in lobbying," ULB Institutional Repository 2013/5901, ULB -- Universite Libre de Bruxelles.
  5. Richard Howarth & Richard Norgaard, 1993. "Intergenerational transfers and the social discount rate," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 3(4), pages 337-358, August.
  6. Aidt, Toke S., 1998. "Political internalization of economic externalities and environmental policy," Journal of Public Economics, Elsevier, vol. 69(1), pages 1-16, July.
  7. Grossman, G.M. & Helpman, E., 1996. "Intergenerational Redistribution with Short-Lived Governments," Papers 178, Princeton, Woodrow Wilson School - Public and International Affairs.
  8. Bernheim, B Douglas & Whinston, Michael D, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, MIT Press, vol. 101(1), pages 1-31, February.
  9. Fredriksson, Per G., 1997. "The Political Economy of Pollution Taxes in a Small Open Economy," Journal of Environmental Economics and Management, Elsevier, vol. 33(1), pages 44-58, May.
  10. Howarth, Richard B & Norgaard, Richard B, 1992. "Environmental Valuation under Sustainable Development," American Economic Review, American Economic Association, vol. 82(2), pages 473-77, May.
  11. Howarth, Richard B., 1991. "Intertemporal equilibria and exhaustible resources: an overlapping generations approach," Ecological Economics, Elsevier, vol. 4(3), pages 237-252, December.
  12. Bernheim, B Douglas & Whinston, Michael D, 1986. "Common Agency," Econometrica, Econometric Society, vol. 54(4), pages 923-42, July.
  13. Richard B. Howarth, 1996. "Climate Change And Overlapping Generations," Contemporary Economic Policy, Western Economic Association International, vol. 14(4), pages 100-111, October.
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