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Sustainability with endogenous discounting

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  • John M. Hartwick
  • Ngo Van Long

Abstract

We construct a dynamic competitive model with a stock of man-made capital and several stocks of natural resources and ask under what conditions consumption will be constant if in nitesimal households with heterogeneous preferences and endowments discount their utility ows at an endogenous rate that depends some macroeconomic variables. We show that for consumption to be constant, this function must be the marginal product ofcapital function. We demonstrate that Hartwicks Rule (that along the constant consumption path, resource rents must be invested in man-made capital) holds in a modi ed form that takes account of natural growth of resource stocks.

Suggested Citation

  • John M. Hartwick & Ngo Van Long, 2017. "Sustainability with endogenous discounting," CIRANO Working Papers 2017s-19, CIRANO.
    • Handle: RePEc:cir:cirwor:2017s-19
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    References listed on IDEAS

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    1. Avinash Dixit & Peter Hammond & Michael Hoel, 1980. "On Hartwick's Rule for Regular Maximin Paths of Capital Accumulation and Resource Depletion," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 47(3), pages 551-556.
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    3. John Hartwick, 1977. "Intergenerational Equity and the Investment of Rents from Exhaustible Resources in a Two Sector Model," Working Paper 281, Economics Department, Queen's University.
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    5. d'Autume, Antoine & Hartwick, John M. & Schubert, Katheline, 2010. "The zero discounting and maximin optimal paths in a simple model of global warming," Mathematical Social Sciences, Elsevier, vol. 59(2), pages 193-207, March.
    6. Le Kama, Alain Ayong & Schubert, Katheline, 2007. "A Note On The Consequences Of An Endogenous Discounting Depending On The Environmental Quality," Macroeconomic Dynamics, Cambridge University Press, vol. 11(2), pages 272-289, April.
    7. R. M. Solow, 1974. "Intergenerational Equity and Exhaustible Resources," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(5), pages 29-45.
    8. Fleurbaey, Marc, 2015. "On sustainability and social welfare," Journal of Environmental Economics and Management, Elsevier, vol. 71(C), pages 34-53.
    9. Obstfeld, Maurice, 1990. "Intertemporal dependence, impatience, and dynamics," Journal of Monetary Economics, Elsevier, vol. 26(1), pages 45-75, August.
    10. Hartwick, John M, 1977. "Intergenerational Equity and the Investing of Rents from Exhaustible Resources," American Economic Review, American Economic Association, vol. 67(5), pages 972-974, December.
    11. Yanase, Akihiko, 2011. "Impatience, pollution, and indeterminacy," Journal of Economic Dynamics and Control, Elsevier, vol. 35(10), pages 1789-1799, October.
    12. Karen Pittel, 2002. "Sustainability and Endogenous Growth," Books, Edward Elgar Publishing, number 2776.
    13. Cairns, Robert D. & Long, Ngo Van, 2006. "Maximin: a direct approach to sustainability," Environment and Development Economics, Cambridge University Press, vol. 11(3), pages 275-300, June.
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    Cited by:

    1. Daniel Grainger, 2023. "Sustainability criterion implied externality pricing for resource extraction," Papers 2306.04065, arXiv.org.
    2. Grainger, Daniel, 2024. "Sustainability criterion implied externality pricing for resource extraction," Economics Letters, Elsevier, vol. 234(C).

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    More about this item

    JEL classification:

    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development

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