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Investment and current utility change in dynamically inefficient economies

  • Bazhanov, Andrei

An extensive literature shows the importance of investment policy for sustainability of resource-based economies by examining the role of investment in current utility change (CUC) for a competitive optimizing economy. This paper extends some of these results by analysing the dependence of CUC on genuine investment (GI), expressed in marginal resource productivity, under dynamic inefficiency. The inefficiency arises when a social planner, due to imperfection in knowledge or in institutions, does not take into account deviations of real economy from a theoretical model. These deviations or distortions, connected with the resource extraction, can influence utility, production, the balance equation, and the dynamics of the reserve. The analysis of this natural discrepancy between theory and real life implies that: first, institutional and resource policies in inefficient economies may be more important for CUC than investment policy; and secondly, under uncertainties in production possibilities and in damages from economic activities, sustainability requires a more cautious resource policy than is advised by a theory. The paper also suggests that the indicators GI, expressed in accounting prices and in marginal resource productivity, can complement each other in sustainability evaluation.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 35487.

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Date of creation: 15 Dec 2011
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Handle: RePEc:pra:mprapa:35487
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  1. Bazhanov, Andrei, 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," MPRA Paper 35870, University Library of Munich, Germany.
  2. GAUDET Gérard & MOREAUX Michel & WITHAGEN Cees, 2006. "The Alberta dilemma: Optimal sharing of a water resource by an agricultural and an oil sector," LERNA Working Papers 06.06.199, LERNA, University of Toulouse.
  3. Frederick Ploeg, 2011. "Rapacious Resource Depletion, Excessive Investment and Insecure Property Rights: A Puzzle," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 48(1), pages 105-128, January.
  4. Kenneth Arrow & Partha Dasgupta & Karl-Göran Mäler, 2003. "Evaluating Projects and Assessing Sustainable Development in Imperfect Economies," Working Papers 2003.109, Fondazione Eni Enrico Mattei.
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  7. 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.
  8. 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.
  9. 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.
  10. Bazhanov, Andrei V., 2010. "Sustainable growth: Compatibility between a plausible growth criterion and the initial state," Resources Policy, Elsevier, vol. 35(2), pages 116-125, June.
  11. Antoine d'Autume & Katheline Schubert, 2008. "Hartwick's rule and maximin paths when the exhaustible resource has an amenity value," Documents de travail du Centre d'Economie de la Sorbonne v08031, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  12. Pearce, David W. & Atkinson, Giles D., 1993. "Capital theory and the measurement of sustainable development: an indicator of "weak" sustainability," Ecological Economics, Elsevier, vol. 8(2), pages 103-108, October.
  13. Andrei Bazhanov, 2012. "A Closed-Form Solution to Stollery’s Problem with Damage in Utility," Computational Economics, Society for Computational Economics, vol. 39(4), pages 365-386, April.
  14. 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.
  15. Hamilton, Kirk & Clemens, Michael, 1999. "Genuine Savings Rates in Developing Countries," World Bank Economic Review, World Bank Group, vol. 13(2), pages 333-56, May.
  16. Gérard Gaudet, 2007. "Natural resource economics under the rule of Hotelling," Canadian Journal of Economics, Canadian Economics Association, vol. 40(4), pages 1033-1059, November.
  17. Kenneth Stollery, 1998. "Constant Utility Paths and Irreversible Global Warming," Canadian Journal of Economics, Canadian Economics Association, vol. 31(3), pages 730-742, August.
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