Hoard or Exploit? Intergenerational Allocation of Exhaustible Natural Resources

Hala Abu-Kalla, Ruslana Palatnik, Ofira Ayalon and Mordechai Shechter ()
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Hala Abu-Kalla: Department of Natural Resources and Environmental Management, University of Haifa, Haifa 3498838, Israel
Ofira Ayalon: Department of Natural Resources and Environmental Management, University of Haifa, Haifa 3498838, Israel

Energies, 2020, vol. 13, issue 24, 1-20

Abstract: In this paper, a “general equilibrium” (GE) model was developed for the allocation of exhaustible natural resources to examine the impact of different extraction scenarios on intergenerational economic welfare. A stylized GE model was applied to Israel’s natural gas (NG) market to evaluate economic indicators resulting from NG-extraction scenarios: a baseline scenario based on current policy in the NG sector, a conservative scenario based on a lower extraction rate, and an intensive scenario based on a faster extraction rate. The impact of various resource income-allocation strategies on intergenerational economic welfare was examined through the mechanism of a “sovereign wealth fund” (SWF). The results indicate that a higher NG-extraction rate combined with an appropriate investment strategy for NG profits is preferable from an economic perspective compared to a conservative rate. Investment of the government take from the NG market in research and development (R&D) of renewable electricity production can sustainably increase economic welfare.

Keywords: economic welfare; energy; exhaustible resource; general equilibrium model; sovereign wealth fund (SWF); natural gas (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2020
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