Intertemporal equilibria and exhaustible resources: an overlapping generations approach

Abstract This paper presents a general equilibrium model of an abstract intertemporal economy with overlapping generations, production possibilities, and capital investment under the constraint of a nonreproducible natural resource. The model provides for institutionally mandated asset transfers between successive generations. Under the assumption that each generation has perfect foresight concerning future prices and economic conditions, competitive exchange supports a multiplicity of Pareto-efficient equilibria that correspond to particular asset transfer regimes. The achievement of a desirable distribution of welfare between present and future generations requires that the asset transfer regime be chosen according to a social welfare function or explicit distributional criterion; economic efficiency per se is insufficient to ensure social optimality. These results have important implications for resource planning in the real world, where policy makers and the public at large are often highly concerned over the potential impacts of current resource utilization on the welfare of future generations.