Can an Exhaustible Resource Economy Be Sustainable?

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