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

16 Pages Posted: 28 Sep 2007 Last revised: 6 Oct 2022

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)

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Date Written: September 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.

Suggested Citation

Sinn, Hans-Werner, Pareto Optimality in the Extraction of Fossil Fuels and the Greenhouse Effect: A Note (September 2007). NBER Working Paper No. w13453, Available at SSRN: https://ssrn.com/abstract=1017776

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