Hartwick's Rule
From Wikipedia, the free encyclopedia
In resource economics, Hartwick's Rule defines, under certain conditions, the amount of investment in produced capital (buildings, roads, knowledge stocks, etc.) that is needed to exactly offset declining stocks of non-renewable resources. This investment is undertaken so that the standard of living does not fall as society moves into the indefinite future. (Solow 1974) shows that, given a degree of substitutability between produced capital and natural resources, one way to design a sustainable consumption program for an economy is to accumulate produced capital sufficiently rapidly so that the pinch from the shrinking exhaustible resource stock is precisely countered by the services from the enlarged produced capital stock. Hartwick's rule – often abbreviated as "invest resource rents" - requires that a nation invest all rent earned from exhaustible resource extraction, where "rent" is defined in a particular way. The rule extends to the case of many types of capital goods, including a vector of stocks of natural capital.
Hartwick's rule is a special case of Hotelling's rule, which defines the optimal profile of resource extraction given an exogenous rate of time preference (i.e. a marginal rate of intertemporal substitution); intertemporal equilibrium ensures an efficient substitution between exhaustible resource stock and investment in produced capital.
The difference between total investment in some kinds of capital and total disinvestment in other types of capital has been labelled "genuine savings". Genuine savings has been estimated for many countries by the World Bank and other authors. A positive value for a nation's genuine savings has been linked to the possibility of long-run economic sustainability.
[edit] References
- Hartwick, John M. [1977] "Intergenerational Equity and the Investment of Rents from Exhaustible Resources" American Economic Review, 66, December, pp. 972-74.
- Hamilton, Kirk and John M. Hartwick [2005] "Investing Exhaustible Resource Rents and the Path of Consumption" Canadian Journal of Economics, 38, 2, pp. 615-621.
- Solow, Robert M. [1974] "Intergenerational Equity and Exhaustible Resources" Review of Economic Studies, Symposium, pp. 29-46.
