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On the Role of Natural Capital - Sustainability, Dynamic (in)Efficiency, and Inclusive Wealth

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  • Andersen, Torben M
  • Løchte Jørgensen, Cecilie Marie
  • Soerensen, Allan

Abstract

Can future generations achieve living standards at least equal to those of the present? We analyse this question in overlapping-generations (OLG) models, both a small analytical and a calibrated version, where natural capital is introduced following Dasgupta (2021). In standard OLG models, dynamic efficiency requires that the market rate of return exceeds population growth, r > n. With natural capital, the condition becomes r > n+e, where e reflects externalities from the natural capital stock. Economies may therefore satisfy r > n yet remain dynamically inefficient. Along the competitive equilibrium path, degrading natural capital can trigger tipping points in production and welfare, undermining intergenerational sustainability

Suggested Citation

  • Andersen, Torben M & Løchte Jørgensen, Cecilie Marie & Soerensen, Allan, 2026. "On the Role of Natural Capital - Sustainability, Dynamic (in)Efficiency, and Inclusive Wealth," CEPR Discussion Papers 21292, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:21292
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    Keywords

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    JEL classification:

    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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