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The Optimal Extraction of Non-Renewable Resources under Hyperbolic Discounting

Author

Listed:
  • Anna M. Dugan

    (University of Graz, Wegener Center for Climate and Global Change and FWF Doctoral Program Climate Change)

  • Timo Trimborn

    (Department of Economics and Business Economics, Aarhus University)

Abstract

In this paper, we investigate the effects of a declining social discount rate (SDR) on the optimal extraction of non-renewable resources and economic growth. For this purpose, we introduce time-consistent hyperbolic utility discounting into models of resource extraction. First, we investigate a small model of pure resource extraction holding constant the magnitude of discounting for hyperbolic and exponential discounting. We show that resource use is more conservative under hyperbolic discounting resulting in a permanently higher resource stock. Second, we introduce hyperbolic discounting into the seminal Dasgupta-Heal-Solow-Stiglitz (DHSS) model and derive analytically that positive long-run consumption growth requires a lower rate of technological progress under hyperbolic discounting. We show numerically that resource use is more conservative under hyperbolic discounting in the medium- and long-run.

Suggested Citation

  • Anna M. Dugan & Timo Trimborn, 2020. "The Optimal Extraction of Non-Renewable Resources under Hyperbolic Discounting," Economics Working Papers 2020-17, Department of Economics and Business Economics, Aarhus University.
    • Handle: RePEc:aah:aarhec:2020-17
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Hyperbolic discounting; social discount rate; non-renewable resource extraction; Dasgupta-Heal-Solow-Stiglitz model;
    All these keywords.

    JEL classification:

    • Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General
    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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