Grainger, Daniel (2024) Sustainability criterion implied externality pricing for resource extraction. Economics letters, 234. 111448.

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Abstract

A dynamic model is constructed that generalises the Hartwick and Van Long (2020) endogenous discounting setup by introducing externalities and asks what implications this has for optimal natural resource extraction with constant consumption. It is shown that a modified form of the Hotelling and Hartwick rule holds in which the externality component of price is a specific function of the instantaneous user costs and cross price elasticities. It is demonstrated that the externality adjusted marginal user cost of remaining natural reserves is equal to the marginal user cost of extracted resources invested in human-made reproducible capital. This lends itself to a discrete form with a readily intuitive economic interpretation that illuminates the stepwise impact of externality pricing on optimal extraction schedules.

Item ID:	81198
Item Type:	Article (Research - C1)
ISSN:	1873-7374
Keywords:	Externalities, Sustainability, Natural resources, Optimal extraction, Hotelling’s rule, Hartwick’s rule
Copyright Information:	© 2023 The Author(s). Published by Elsevier B.V. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).
Date Deposited:	27 Nov 2023 23:28
FoR Codes:	38 ECONOMICS > 3803 Economic theory > 380303 Mathematical economics @ 100%
SEO Codes:	15 ECONOMIC FRAMEWORK > 1599 Other economic framework > 159901 Carbon and emissions trading @ 50% 15 ECONOMIC FRAMEWORK > 1599 Other economic framework > 159902 Ecological economics @ 50%
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