On the extraction of common-pool resources: impacts of population, amenity values and income inequality

Abstract

This paper studies the dynamic extraction problem of an exhaustible common-pool resource. We build on classical closed-economy growth models with intertemporally maximizing, infinitely lived dynasties exhibiting a constant population growth rate. Utility is obtained from periodic consumption based on the fixed-rate capital and the extraction of the resource, and from the amenity values derived from the standing resource stock. The resource contributes to both consumptive and amenity utilities, while different generations are interconnected by intergenerational altruism. Dynamic allocation of the natural resource is determined by a benevolent social planner. This allows us to examine intra-generational inequity issues in combination with the intergenerational concerns. We demonstrate how the optimal allocation of the resource depends on the population growth, wealth level, inequality, ecological vulnerability of the resource and rivalry on the amenity value. Our results highlight the trade-offs between reducing the degree of inequality and preserving the ecological values of the resource.