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Environmental and Resource Economics

, Volume 48, Issue 1, pp 105–128 | Cite as

Rapacious Resource Depletion, Excessive Investment and Insecure Property Rights: A Puzzle

  • Frederick van der PloegEmail author
Article

Abstract

For a country fractionalized in competing factions, each owning part of the stock of natural exhaustible resources, or with insecure property rights, we analyze how resources are transformed into productive capital to sustain consumption. We allow property rights to improve as the country transforms natural resources into capital. The ensuing power struggle about the control of resources is solved as a non-cooperative differential game. Prices of resources and depletion increase faster than suggested by the Hotelling rule, especially with many competing factions and less secure property rights. As a result, the country substitutes away from resources to capital too rapidly and invests more than predicted by the Hartwick rule. The theory suggests that power struggle boosts output but depresses aggregate consumption and welfare, especially in highly fractionalized countries with less secure property rights. Also, adjusted net saving estimates calculated by the World Bank using market prices over-estimate welfare-based measures of genuine saving. Since our theory suggests that genuine saving is zero while empirically they are negative in resource-rich, fractionalized countries, we suggest ways of resolving this puzzle.

Keywords

Exhaustible resources Hotelling rule Hartwick rule Capital Sustainable consumption Fractionalization Seepage Interconnected pools Insecure property rights Differential game Genuine saving Adjusted net saving 

JEL Classification

E20 F32 O13 Q01 Q32 

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Copyright information

© Springer Science+Business Media B.V. 2010

Authors and Affiliations

  1. 1.University of OxfordOxfordUK
  2. 2.The Tinbergen Institute, CEPR and CESifoUniversity of AmsterdamAmsterdamThe Netherlands

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