Accounting price of an exhaustible resource: response and extensions

Kirk Hamilton and Giovanni Ruta

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Wei (Environ Resour Econ 60:579–581, 2015) presents a novel derivation of the accounting price for an exhaustible resource in a non-optimal economy subject to an allocation mechanism. We show that Wei (2015) and Hamilton and Ruta (Environ Resour Econ 42:53–64, 2009) are in fact employing different and mutually exclusive allocation mechanisms for the economy, and this explains the differences between the respective accounting prices. Because accounting prices must be defined subject to the allocation mechanism for the economy, the prices derived in the two papers are equally valid within their respective allocation domains. Further analysis shows that if there is declining marginal product of factors, a ‘Hartwick investment rule’ for the model economy (set investment just equal to depletion, valued at the accounting price) will lead to declining consumption for the Wei (2015) accounting price, and increasing consumption for the Hamilton and Ruta (2009) accounting price. This result is extended to consider the accounting standards recommended in the UN SEEA (System of environmental-economic accounting 2012: central framework. United Nations, European Commission, Food and Agriculture Organization of the United Nations, International Monetary Fund, Organisation for Economic Co-operation and Development, World Bank, 2012), as well as accounting for environmental externalities from resource use.

Keywords: Exhaustible resource; Accounting price; Resource depletion; Hartwick rule; Environmental externality (search for similar items in EconPapers)
JEL-codes: Q01 Q32 Q5 Q53 Q56 (search for similar items in EconPapers)
Date: 2016-05-20
New Economics Papers: this item is included in nep-env
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Published in Environmental and Resource Economics, 20, May, 2016, 68(3), pp. 527-536. ISSN: 0924-6460

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Related works:
Journal Article: Accounting Price of an Exhaustible Resource: Response and Extensions (2017)
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