Exhaustible Resources in an Overlapping Generations Economy

This paper explores the natural resource consumption behavior of a competitively determined economy relative to a socially planned benchmark when agents are characterized as having finite lifespans which overlap. A general equilibrium model of a production economy which uses inputs from a finite stock of an aggregate natural resource is formulated and solved for the rates of resource extraction associated with the competitive outcome and the socially planned one. It is shown that resource extraction in the competitive economy can exceed that of the socially planned optimum and that intergenerational inequities result.