Intergenerational externalities, sustainability and welfare—The ambiguous effect of optimal policies on resource depletion

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Abstract

This paper studies an endogenous growth model with exhaustible resources, overlapping generations and human capital externalities. In the competitive equilibrium, selfish behavior and inefficient skills accumulation may prevent sustained growth. Implementing the utilitarian optimum likely induces sustainability via increased knowledge formation, but resource depletion may be faster or slower than under laissez-faire depending on the social discount rate. Heavy (modest) social discounting delays (anticipates) the achievement of net welfare gains for newborn agents and successors. The reason is that human capital accumulation magnifies the positive growth effects of policies that lower the rate of resource destruction, preserving the welfare of newborn agents. Resource-depleting policies, instead, hamper growth and reduce lifetime welfare of early-in-time generations—the first loser being the currently young.
Original languageEnglish
Pages (from-to)995-1014
Number of pages20
JournalResource and Energy Economics
Volume33
Issue number4
Early online date15 Sep 2010
DOIs
Publication statusPublished - Nov 2011

Keywords

  • Endogenous growth
  • Exhaustible resources
  • Human capital
  • Overlapping generations
  • Intergenerational distribution
  • Sustainability

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