Voracious Transformation of a Common Natural Resource into Productive Capital

Frederick (Rick) van der Ploeg

No 2, OxCarre Working Papers from Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford

Abstract: We analyze a power struggle about the control of natural resources where competing factions in society have a private stock of financial assets and a common stock of natural resources with inadequately defined private property rights. We solve a dynamic common-pool problem and obtain political economy variants of the Hotelling rule for resource depletion and the Hartwick saving rule necessary to sustain constant consumption in an economy with exhaustible natural resources. The rate of increase in the price of natural resources and resource depletion are faster than demanded by the Hotelling rule. As a result, the country substitutes away from resources to capital too rapidly so that it saves and invests more than a homogenous society. The power struggle boosts output, but depresses aggregate consumption and social welfare. Genuine saving is nevertheless zero in a fractionalized society, since the too rapid depletion of natural resources is exactly in line with the too rapid accumulation of physical capital. World Bank measures of genuine saving are likely to be over-estimated. This exacerbates the puzzle of why many resource-rich countries experience negative genuine saving rates.

Keywords: Exhaustible resources; Hotelling rents; Hartwick rule; sustainable consumption; common pool; fractionalization (search for similar items in EconPapers)
JEL-codes: E20 F32 O13 Q01 Q32 (search for similar items in EconPapers)
Date: 2008-02-12
References: View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Journal Article: VORACIOUS TRANSFORMATION OF A COMMON NATURAL RESOURCE INTO PRODUCTIVE CAPITAL (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:oxf:oxcrwp:002

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