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Inconsistency between a criterion and the initial conditions

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  • Bazhanov, Andrei

Abstract

What if an unsustainable economy decides to switch in finite time to a sustainable path of a nonrenewable resource extraction which is optimal with respect to some criterion? We consider this problem on the example of the Dasgupta-Heal-Solow-Stiglitz model (DHSS) using constant consumption over time as a criterion. It turns out that if the criterion has no connections with the "opportunities" of the economy (initial conditions) then the resulting "optimal" path of consumption can be inferior to the one along some sub-optimal sustainable paths of extraction calibrated on the original initial conditions. In our case we have obtained under the standard Hartwick Rule bounded and unbounded growth of consumption along these sub-optimal paths.

Suggested Citation

  • Bazhanov, Andrei, 2008. "Inconsistency between a criterion and the initial conditions," MPRA Paper 6792, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:6792
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    References listed on IDEAS

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    Cited by:

    1. Andrei V. Bazhanov, 2008. "Maximin-optimal sustainable growth with nonrenewable resource and externalities," EERI Research Paper Series EERI_RP_2008_11, Economics and Econometrics Research Institute (EERI), Brussels.

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    More about this item

    Keywords

    Essential nonrenewable resource; Sustainable extraction; Criterion inconsistency; Hartwick Rule;
    All these keywords.

    JEL classification:

    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)

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