Sustainable Use of Renewable Resources
Bocconi University - Department of Finance
Geoffrey M. Heal
Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)
Sustainability: Dynamics and Uncertainty
We study paths which involve optimal use of a renewable resource under several alternative definitions of optimality, including the discounted utilitarian, Chichilnisky's, the Rawlsian and the green golden rule. Initially we consider an economy where the only good is the resource: subsequently, we embed the resource in a productive economy with capital accumulation. Our aim is to investigate how the alternative approaches contribute to the understanding of the issues underlying concerns about sustainable use of the earth's resources. We show that Chichilnisky's criterion has several interesting characteristics: it leads the economy to asymptote to the green golden rule (the configuration giving the highest sustainable utility level) and requires that the discount rate fall asymptotically to zero, which can be interpreted as an application to intertemporal preferences of the well-known Webe-Fechner law of physics and physiology.
JEL Classification: Q20, D90Accepted Paper Series
Date posted: November 19, 1996
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