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Rapacious Resource Depletion, Excessive Investment and Insecure Property Rights

  • Frederick Van der Ploeg

For a country fractionalized in competing factions, each owning part of the stock of natural exhaustible resources, or with insecure property rights, we analyze how resources are transformed into productive capital to sustain consumption. We allow property rights to improve as the country transforms natural resources into capital. The ensuing power struggle about the control of resources is solved as a non-cooperative differential game. Prices of resources and depletion increase faster than suggested by the Hotelling rule, especially with many competing factions and less secure property rights. As a result, the country substitutes away from resources to capital too rapidly and invests more than predicted by the Hartwick rule. The power struggle boosts output but depresses aggregate consumption and welfare, especially in highly fractionalized countries with less secure property rights. The theory suggests that adjusted net saving estimates calculated by the World Bank using market prices over-estimate welfare-based measures of genuine saving.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2010/wp-cesifo-2010-03/cesifo1_wp2981.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2981.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_2981
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  1. Robinson, James A. & Torvik, Ragnar, 2005. "White elephants," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 197-210, February.
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  7. Hodler, Roland, 2006. "The curse of natural resources in fractionalized countries," European Economic Review, Elsevier, vol. 50(6), pages 1367-1386, August.
  8. Frederick van der Ploeg, 2010. "Voracious Transformation Of A Common Natural Resource Into Productive Capital," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(2), pages 365-381, 05.
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  10. Hartwick, John M, 1977. "Intergenerational Equity and the Investing of Rents from Exhaustible Resources," American Economic Review, American Economic Association, vol. 67(5), pages 972-74, December.
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  13. Dasgupta, Partha & M Ler, Karl-G Ran, 2000. "Net national product, wealth, and social well-being," Environment and Development Economics, Cambridge University Press, vol. 5(01), pages 69-93, February.
  14. James A. Brander & M. Scott Taylor, 1995. "International Trade and Open Access Renewable Resources: The Small Open Economy Case," NBER Working Papers 5021, National Bureau of Economic Research, Inc.
  15. Van Der Ploeg, F., 1987. "Inefficiency of credible strategies in oligopolistic resource markets with uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 11(1), pages 123-145, March.
  16. Asheim, Geir B. & Mitra, Tapan, 2010. "Sustainability and discounted utilitarianism in models of economic growth," Mathematical Social Sciences, Elsevier, vol. 59(2), pages 148-169, March.
  17. Frederick Van der Ploeg, 2010. "Natural Resources: Curse or Blessing?," CESifo Working Paper Series 3125, CESifo Group Munich.
  18. Michael Alexeev & Robert Conrad, 2009. "The Elusive Curse of Oil," The Review of Economics and Statistics, MIT Press, vol. 91(3), pages 586-598, August.
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  24. Frederick van der Ploeg, 2011. "Natural Resources: Curse or Blessing?," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 366-420, June.
  25. J. A. Sefton & M. R. Weale, 2006. "The Concept of Income in a General Equilibrium," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 219-249.
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  27. Dixit, Avinash & Hammond, Peter & Hoel, Michael, 1980. "On Hartwick's Rule for Regular Maximin Paths of Capital Accumulation and Resource Depletion," Review of Economic Studies, Wiley Blackwell, vol. 47(3), pages 551-56, April.
  28. Dasgupta, Swapan & Mitra, Tapan, 1983. "Intergenerational Equity and Efficient Allocation of Exhaustible Resources," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(1), pages 133-53, February.
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