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Inconsistency between a criterion and the initial conditions

  • Bazhanov, Andrei

What if an unsustainable economy decides to switch in finite time to a sustainable path of a nonrenewable resource extraction which is optimal with respect to some criterion? We consider this problem on the example of the Dasgupta-Heal-Solow-Stiglitz model (DHSS) using constant consumption over time as a criterion. It turns out that if the criterion has no connections with the "opportunities" of the economy (initial conditions) then the resulting "optimal" path of consumption can be inferior to the one along some sub-optimal sustainable paths of extraction calibrated on the original initial conditions. In our case we have obtained under the standard Hartwick Rule bounded and unbounded growth of consumption along these sub-optimal paths.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6792.

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Date of creation: 02 Jan 2008
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Handle: RePEc:pra:mprapa:6792
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  1. John Hartwick, 1976. "Intergenerational Equity and the Investing of Rents from Exhaustible Resources," Working Papers 220, Queen's University, Department of Economics.
  2. Bazhanov, Andrei, 2005. "Variation principles for modeling in resource economics," MPRA Paper 1309, University Library of Munich, Germany, revised 08 Aug 2006.
  3. Asheim, Geir B. & Buchholz, Wolfgang & Hartwick, John M. & Mitra, Tapan & Withagen, Cees, 2007. "Constant savings rates and quasi-arithmetic population growth under exhaustible resource constraints," Journal of Environmental Economics and Management, Elsevier, vol. 53(2), pages 213-229, March.
  4. Grimaud, André & Rougé, Luc, 2003. "Polluting Non-Renewable Resources, Innovation and Growth : Welfare and Environmental Policy," IDEI Working Papers 206, Institut d'Économie Industrielle (IDEI), Toulouse.
  5. Bazhanov, Andrei V., 2007. "The transition to an oil contraction economy," Ecological Economics, Elsevier, vol. 64(1), pages 186-193, October.
  6. 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.
  7. 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.
  8. Graciela Chichilnisky, 1996. "An axiomatic approach to sustainable development," Social Choice and Welfare, Springer, vol. 13(2), pages 231-257, April.
  9. Bazhanov, Andrei, 2007. "Switching to a sustainable efficient extraction path," MPRA Paper 2976, University Library of Munich, Germany.
  10. John C. V. Pezzey, 2004. "Sustainability Policy and Environmental Policy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(2), pages 339-359, 06.
  11. Karp, Larry & Livernois, John, 1992. "On efficiency-inducing taxation for a non-renewable resource monopolist," Journal of Public Economics, Elsevier, vol. 49(2), pages 219-239, November.
  12. Bazhanov, Andrei, 2006. "Decreasing of Oil Extraction: Consumption behavior along transition paths," MPRA Paper 469, University Library of Munich, Germany.
  13. 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.
  14. Bazhanov, Andrei, 2007. "The peak of oil extraction and consistency of the government's short- and long-run policies," MPRA Paper 2507, University Library of Munich, Germany.
  15. Bazhanov, Andrei, 2006. "The peak of oil extraction and a modified maximin principle," MPRA Paper 14775, University Library of Munich, Germany, revised 12 Feb 2007.
  16. Bernard Caillaud & Patrick Rey & Roger Guesnerie & Jean Tirole, 1987. "Government Intervention in Production and Incentives Theory: A Review of Recent Contributions," Working papers 472, Massachusetts Institute of Technology (MIT), Department of Economics.
  17. James A. Brander, 2007. "Viewpoint: Sustainability: Malthus revisited?," Canadian Journal of Economics, Canadian Economics Association, vol. 40(1), pages 1-38, February.
  18. Poterba, James M, 1988. "Are Consumers Forward Looking? Evidence from Fiscal Experiments," American Economic Review, American Economic Association, vol. 78(2), pages 413-18, May.
  19. Davis, Graham A & Cairns, Robert D, 1999. "Valuing Petroleum Reserves Using Current Net Price," Economic Inquiry, Western Economic Association International, vol. 37(2), pages 295-311, April.
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