Genuine Saving and the Voracity Effect
Many resource-rich countries have negative genuine saving rates, so deplete their exhaustible natural resource wealth faster than they build up wealth in other assets. This phenomenon is stronger in more fractionalized countries with poor legal systems. We explain this by a power struggle about the control of natural resources. Competing fractions in society thus have a private stock of financial assets and a common stock of natural resources. We solve a dynamic common-pool problem and obtain political economy variants of the Hotelling rule for resource depletion and the Hartwick saving rule necessary to sustain constant consumption in an economy with exhaustible natural resources. Resource depletion is faster than demanded by the Hotelling rule. As a result, the country has negative genuine saving rates and is running down its national wealth. The country saves more in financial assets than the current natural resource rents. Still, the erosion of natural wealth exceeds the accumulation of financial assets. Even though the power struggle boosts output, consumption is sub-optimally low. The highlighted political distortions are larger if the country is more fractionalized.
|Date of creation:||2007|
|Date of revision:|
|Contact details of provider:|| Postal: Badia Fiesolana, Via dei Roccettini, 9, 50014 San Domenico di Fiesole (FI) Italy|
Web page: http://www.eui.eu/ECO/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Asheim,G.B. & Weitzman,M.L., 2001.
"Does NNP growth indicate welfare improvement?,"
02/2001, Oslo University, Department of Economics.
- J Sefton & M Weale, 2005. "The Concept of Income in a General Equilibrium," NajEcon Working Paper Reviews 122247000000000844, www.najecon.org.
- Kirk Hamilton & John Hartwick, 2005. "Investing exhaustible resource rents and the path of consumption," Canadian Journal of Economics, Canadian Economics Association, vol. 38(2), pages 615-621, May.
- Roland Hodler, 2004.
"The Curse of Natural Resources in Fractionalized Countries,"
dp0404, Universitaet Bern, Departement Volkswirtschaft.
- Hodler, Roland, 2006. "The curse of natural resources in fractionalized countries," European Economic Review, Elsevier, vol. 50(6), pages 1367-1386, August.
- 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.
- Lane, Philip R & Tornell, Aaron, 1996. "Power, Growth, and the Voracity Effect," Journal of Economic Growth, Springer, vol. 1(2), pages 213-41, June.
- Philip R. Lane & Aaron Tornell, 1999. "The Voracity Effect," American Economic Review, American Economic Association, vol. 89(1), pages 22-46, March.
- R. M. Solow, 1974.
"Intergenerational Equity and Exhaustible Resources,"
Review of Economic Studies,
Oxford University Press, vol. 41(5), pages 29-45.
- R. M. Solow, 1973. "Intergenerational Equity and Exhaustable Resources," Working papers 103, Massachusetts Institute of Technology (MIT), Department of Economics.
- Hamilton, Kirk & Ruta, Giovanni & Tajibaeva, Liaila, 2005.
"Capital accumulation and resources depletion - a Hartwick rule counterfactual,"
Policy Research Working Paper Series
3480, The World Bank.
- Kirk Hamilton & Giovanni Ruta & Liaila Tajibaeva, 2006. "Capital Accumulation and Resource Depletion: A Hartwick Rule Counterfactual," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 34(4), pages 517-533, August.
- David, Paul A & Wright, Gavin, 1997. "Increasing Returns and the Genesis of American Resource Abundance," Industrial and Corporate Change, Oxford University Press, vol. 6(2), pages 203-45, March.
- Heal, G., 1990.
"The Optimal Use Of Exhaustible Resources,"
fb-_90-10, Columbia - Graduate School of Business.
- 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.
- Asheim, Geir B., 1996. "Capital gains and net national product in open economies," Journal of Public Economics, Elsevier, vol. 59(3), pages 419-434, March.
- Kirk Hamilton & Cees Withagen, 2007. "Savings growth and the path of utility," Canadian Journal of Economics, Canadian Economics Association, vol. 40(2), pages 703-713, May.
- Geir B. Asheim, 1986. "Hartwick's Rule in Open Economies," Canadian Journal of Economics, Canadian Economics Association, vol. 19(3), pages 395-402, August.
- Avinash Dixit & Peter Hammond & Michael Hoel, 1980. "On Hartwick's Rule for Regular Maximin Paths of Capital Accumulation and Resource Depletion," Review of Economic Studies, Oxford University Press, vol. 47(3), pages 551-556.
- 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.
- 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.
- John Hartwick, 1976. "Intergenerational Equity and the Investing of Rents from Exhaustible Resources," Working Papers 220, Queen's University, Department of Economics.
- Vincent, Jeffrey R. & Panayotou, Theodore & Hartwick, John M., 1997. "Resource Depletion and Sustainability in Small Open Economies," Journal of Environmental Economics and Management, Elsevier, vol. 33(3), pages 274-286, July.
When requesting a correction, please mention this item's handle: RePEc:eui:euiwps:eco2007/38. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anne Banks)
If references are entirely missing, you can add them using this form.