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The Optimal Extraction of Non-Renewable Resources under Hyperbolic Discounting

Anna M. Dugan () and Timo Trimborn ()
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Anna M. Dugan: University of Graz, Wegener Center for Climate and Global Change and FWF Doctoral Program Climate Change, Postal: Brandhofgasse 5, 8010 Graz, Austria

Economics Working Papers from Department of Economics and Business Economics, Aarhus University

Abstract: In this paper, we investigate the effects of a declining social discount rate (SDR) on the optimal extraction of non-renewable resources and economic growth. For this purpose, we introduce time-consistent hyperbolic utility discounting into models of resource extraction. First, we investigate a small model of pure resource extraction holding constant the magnitude of discounting for hyperbolic and exponential discounting. We show that resource use is more conservative under hyperbolic discounting resulting in a permanently higher resource stock. Second, we introduce hyperbolic discounting into the seminal Dasgupta-Heal-Solow-Stiglitz (DHSS) model and derive analytically that positive long-run consumption growth requires a lower rate of technological progress under hyperbolic discounting. We show numerically that resource use is more conservative under hyperbolic discounting in the medium- and long-run.

Keywords: Hyperbolic discounting; social discount rate; non-renewable resource extraction; Dasgupta-Heal-Solow-Stiglitz model (search for similar items in EconPapers)
JEL-codes: C60 H30 Q30 (search for similar items in EconPapers)
Pages: 31
Date: 2020-12-01
New Economics Papers: this item is included in nep-env, nep-gro and nep-upt
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