Our next seminar will take place on Thursday 27 May 12h30 via Zoom (link Zoom). We will host Anna Dugan (University of Graz and visiting scholar at CREAM) “The Optimal Extraction of Non-Renewable Resources Under Hyperbolic Discounting” with (Timo Trimborn).
Abstract “In this paper, we investigate the effects of a declining social discount rate(SDR) on the optimal extraction of non-renewable resources and economic growth. For this purpose, we introduce time-consistent hyperbolic utility discounting into models of resource extraction. First, we investigate a small model of pure resource extraction holding constant the magnitude of discounting for hyperbolic and exponential discounting. We show that the rate of resource extraction is lower under hyperbolic discounting resulting in a permanently higher resource stock. Second, we introduce hyperbolic discounting into the seminal Dasgupta-Heal-Solow-Stiglitz(DHSS) model and derive analytically that positive long-run growth of per capita consumption requires a lower rate of technological progress under hyperbolic dis-counting. We show numerically that the rate of resource extraction is lower under hyperbolic discounting in the medium- and long-run.”
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