Rapacious Resource Depletion, Excessive Investment and Insecure Property Rights

35 Pages Posted: 22 Mar 2010

Date Written: March 2010

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 power struggle boosts output but depresses aggregate consumption and welfare, especially in highly fractionalized countries with less secure property rights. The theory suggests that adjusted net saving estimates calculated by the World Bank using market prices over-estimate welfare-based measures of genuine saving.

Keywords: exhaustible resources, Hotelling rule, Hartwick rule, capital, sustainable consumption, fractionalization, seepage, insecure property rights, differential game, genuine saving, adjusted net saving

JEL Classification: E20, F32, O13, Q01, Q32

Suggested Citation

van der Ploeg, Frederick, Rapacious Resource Depletion, Excessive Investment and Insecure Property Rights (March 2010). CESifo Working Paper Series No. 2981, Available at SSRN: https://ssrn.com/abstract=1571060 or http://dx.doi.org/10.2139/ssrn.1571060

Frederick Van der Ploeg (Contact Author)

University of Oxford ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom

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