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Rapacious Resource Depletion, Excessive Investment and Insecure Property Rights: A Puzzle

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  • Rick Van der Ploeg

Abstract

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 theory suggests that power struggle boosts output but depresses aggregate consumption and welfare, especially in highly fractionalized countries with less secure property rights. Also, adjusted net saving estimates calculated by the World Bank using market prices over-estimate welfare-based measures of genuine saving. Since our theory suggests that genuine saving is zero while empirically they are negative in resource-rich, fractionalized countries, we suggest ways of resolving this puzzle.

Suggested Citation

  • Rick Van der Ploeg, 2009. "Rapacious Resource Depletion, Excessive Investment and Insecure Property Rights: A Puzzle," OxCarre Working Papers 016, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  • Handle: RePEc:oxf:oxcrwp:016
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    Cited by:

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    2. Bazhanov, Andrei, 2011. "Зависимость Долгосрочного Роста Ресурсной Экономики От Начального Состояния: Сравнение Моделей На Примере Российской Нефтедобычи [The dependence of the potential sustainability of a resource econom," MPRA Paper 35888, University Library of Munich, Germany.
    3. Stergios Athanassoglou & Glenn Sheriff & Tobias Siegfried & Woonghee Huh, 2012. "Optimal Mechanisms for Heterogeneous Multi-Cell Aquifers," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 52(2), pages 265-291, June.
    4. Bazhanov, Andrei, 2011. "Investment and current utility change in dynamically inefficient economies," MPRA Paper 35487, University Library of Munich, Germany.
    5. Bazhanov, A., 2011. "The Dependence of the Potential Sustainability of a Resource Economy on the Initial State: a Comparison of Models Using the Example of Russian Oil Extraction," Journal of the New Economic Association, New Economic Association, issue 12, pages 77-100.
    6. Bazhanov, Andrei V., 2015. "Inefficiency and sustainability," Resources Policy, Elsevier, vol. 45(C), pages 210-216.
    7. Sato, Masayuki & Samreth, Sovannroeun & Sasaki, Kengo, 2013. "The Stability of Sustainable Development Path and Institutions: Evidence from Genuine Savings Indicators," MPRA Paper 48983, University Library of Munich, Germany.
    8. Rintaro Yamaguchi, 2021. "Genuine Savings and Sustainability with Resource Diffusion," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 80(2), pages 451-471, October.
    9. Bazhanov, Andrei, 2012. "Disregarded inefficiency may dominate sustainability policies," MPRA Paper 43621, University Library of Munich, Germany.

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    More about this item

    Keywords

    Exhaustible resources; Hotelling rule; Hartwick rule; capital; sustainable consumption; fractionalization; seepage; interconnected pools; insecure property rights; differential game; genuine saving; adjusted net saving;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development

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