TITLE:
Sustainable Consumption with an Essential Exhaustible Resource Re-Examined
AUTHORS:
Juan Sesmero, Lilyan Fulginiti
KEYWORDS:
Sustainable Consumption, Essential Exhaustible Resource, Variable Elasticity of Substitution, Non-Neutral Technical Progress
JOURNAL NAME:
Theoretical Economics Letters,
Vol.6 No.3,
June
8,
2016
ABSTRACT: This study derives
conditions for existence of a positive sustainable consumption in an economy
with an essential exhaustible resource. It does so by approximating technology
with a variable elasticity of substitution production function, instead of the
constant elasticity of substitution specification widely assumed in previous
studies. This approach permits examination of the robustness of results
previously derived in the literature to key technological assumptions. It also
generates new insights regarding the role of substitutability and technical
progress on existence. We find that a capital-resource elasticity of
substitution greater than one is sufficient for existence even when the
resource is strictly essential; a situation precluded by constant elasticity of
substitution specifications. Under an elasticity of substitution lower than one,
existence can still be attained (in contrast to the constant elasticity of
substitution case) but only through capital-augmenting technical progress.
Hicks-neutral technical progress is neither necessary nor sufficient for
existence. A sufficiently high resource-augmenting technical progress thwarts
existence of a positive sustainable consumption.