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Relative Consumption and Resource Extraction

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  • Francisco Alvarez-Cuadrado
  • Ngo Van Long

Abstract

This paper presents a simple model of resource extraction where preferences are household's preferences depend on relative consumption levels. We identify two dimensions along which consumption externalities distort the efficient extraction of resources: (i) the static trade-off between consumption and effort, and (ii) the dynamic trade-off between current and future consumption. In general, households over-exploit the natural resource stocks, resulting in steady state stocks lower than the efficient stocks of resources that would be chosen by a benevolent central planner. We propose a tax mechanism to induce the first best outcome. On présente un modèle d'exploitation d'une ressource naturelle dans lequel les ménages accordent une importance à la consommation relative, soit la différence entre leur consommation et celle de leur groupe de référence. On identifie deux dimensions de distorsion. Premièrement, il y a la distorsion dans le choix du niveau d'effort. Deuxièmement, il y a la distorsion dans le choix entre la consommation présente et la consommation dans le futur. En général, les ménages ont tendance à exploiter les ressources naturelles de facon excessive. Par conséquent, les stocks de ressources à l'état stationnaire sont plus petits que ceux qu'aurait choisis un planificateur central. On propose une règle de taxation qui assure les résultats optimaux.

Suggested Citation

  • Francisco Alvarez-Cuadrado & Ngo Van Long, 2008. "Relative Consumption and Resource Extraction," CIRANO Working Papers 2008s-27, CIRANO.
  • Handle: RePEc:cir:cirwor:2008s-27
    as

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    File URL: http://www.cirano.qc.ca/files/publications/2008s-27.pdf
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    References listed on IDEAS

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    Cited by:

    1. Long, Ngo Van & Wang, Shengzu, 2009. "Resource-grabbing by status-conscious agents," Journal of Development Economics, Elsevier, vol. 89(1), pages 39-50, May.
    2. Russell Davidson & Adriana Cornea, 2008. "A Refined Bootstrap For Heavy Tailed Distributions," Departmental Working Papers 2008-03, McGill University, Department of Economics.

    More about this item

    Keywords

    relative consumption; relative income hypothesis; permanent income hypothesis; consommation relative; revenue relative; l'hypothèse de la revenue permanente.;

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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