Can an Exhaustible Resource Economy Be Sustainable?

27 Pages Posted: 29 Jul 2002

See all articles by Y. Hossein Farzin

Y. Hossein Farzin

University of California, Davis - Department of Agricultural and Resource Economics; Oxford Centre for the Analysis of Resource Rich Economies (OxCarre)

Date Written: June 2002

Abstract

I focus on two alternative concepts of sustainability dominating the literature: (i) maximum permanently maintainable consumption level (Fisherian income) and (ii) the amount of consumption that leaves total value of wealth intact (Hicksian income). In the context of a pure exhaustible resource economy, I derive an explicit relationship between the two sustainability criteria and show that while such an economy is not sustainable in the former sense, it is in the latter sense provided social preferences are represented by a logarithmic utility function. I also derive the implications of the two concepts for greening of national income. Finally, I show the range of values of the parameters of the model for which the utilitarian optimal path can be close to paths satisfying the alternative sustainability criteria, suggesting that such outcomes are less likely for very poor resource-dependent countries than for the rich ones.

Keywords: Sustainability, Resource Stock Value, Optimal Consumption Path, Green Accounting

JEL Classification: O21, D63, Q32

Suggested Citation

Farzin, Y. Hossein, Can an Exhaustible Resource Economy Be Sustainable? (June 2002). Available at SSRN: https://ssrn.com/abstract=317933 or http://dx.doi.org/10.2139/ssrn.317933

Y. Hossein Farzin (Contact Author)

University of California, Davis - Department of Agricultural and Resource Economics ( email )

One Shields Avenue
Davis, CA 95616
United States
530-752-7610 (Phone)
530-752-5614 (Fax)

HOME PAGE: http://farzin.ucdavis.edu/

Oxford Centre for the Analysis of Resource Rich Economies (OxCarre) ( email )

University of Oxford, Department of Economics
Manor Road
Oxford, OX1 4AU
United Kingdom

HOME PAGE: http://www.oxcarre.ox.ac.uk

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