Pareto Optimality in the Extraction of Fossil Fuels and the Greenhouse Effect: A Note

Sinn, Hans-Werner

doi:10.2139/ssrn.1014016

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Pareto Optimality in the Extraction of Fossil Fuels and the Greenhouse Effect: A Note

CESifo Working Paper Series No. 2083

20 Pages Posted: 13 Sep 2007

See all articles by Hans-Werner Sinn

Hans-Werner Sinn

CESifo (Center for Economic Studies and Ifo Institute); National Bureau of Economic Research (NBER); Ludwig Maximilian University of Munich (LMU)

There are 2 versions of this paper

Date Written: August 2007

Abstract

This note generalizes the Solow-Stiglitz efficiency condition for natural resources to the problem of fossil fuel extraction with a greenhouse effect. The generalized optimality condition suggests that the greenhouse effect implies overextraction in the sense of leaving future generations a wrongly composed wealth portfolio with too few natural resources relative to man-made capital. This judgment is independent of society's ethical preferences concerning the well-being of future generations.

Keywords: global warming, resource extraction, Pareto optimality

JEL Classification: O13, Q32, Q54

Suggested Citation: Suggested Citation

Sinn, Hans-Werner, Pareto Optimality in the Extraction of Fossil Fuels and the Greenhouse Effect: A Note (August 2007). CESifo Working Paper Series No. 2083, Available at SSRN: https://ssrn.com/abstract=1014016 or http://dx.doi.org/10.2139/ssrn.1014016