Sustainability and the intergenerational distribution of natural resource entitlements

Abstract The paper describes an OLG economy with a single exhaustible resource that has amenity value. The steady states of this economy form a continuum, implying path-dependency. We compare three policy scenarios; first, a ‘zero extraction’ policy of enforced conservation that avoids environmental degradation, possibly at the expense of intertemporal efficiency. Second, a ‘grandfathering’ policy that endows the present generations with all resources, and that ensures efficiency but cannot prevent a persistent decline in lifetime utility from one generation to the next. Third, a ‘trust fund’ policy, where future generations receive claims for the natural resource. Of the three, only the trust fund ensures efficiency and protects welfare of all generations.