Efficiency in Overlapping Generations Economies with Natural Resources

Bo Zhang () and Zhixiang Zhang ()
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Bo Zhang: School of Economics, Peking University, Beijing 100871, China
Zhixiang Zhang: China Economics and Management Academy, Central University of Finance and Economics, Beijing, 100081, China.

Annals of Economics and Finance, 2025, vol. 26, issue 2, 765-823

Abstract: This paper investigates the Pareto effciency of competitive equilibria in overlapping-generations (OLG) economies with three productive factors -- physical capital, labor, and a natural resource. We derive general criteria for both effciency and inefficiency by comparing the interest rate with the growth rates of the capital stock, income, and aggregate asset value. Specifically, in the long run, the equilibrium is efficient if any of these growth rates is lower than the interest rate, and inefficient if any exceeds it. These criteria also hold in OLG economies with land. We apply these criteria to several models of resource use, some of which are novel. In one such model, where the resource regeneration function is linear, we establish a threshold for the rate of resource extraction: below this threshold, the equilibrium is effcient; above it, the equilibrium is ineffcient. In another novel model featuring a quadratic regeneration function, we introduce a composite capital index. If the labor share is below this index, the equilibrium is effcient; if it exceeds the index, the equilibrium is ineffcient.

Keywords: OLG; Dynamic equilibrium; Efficiency; Natural resources (search for similar items in EconPapers)
JEL-codes: O13 O40 Q20 Q30 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:cuf:journl:y:2025:v:26:i:2:zhangzhang

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