Intergenerational Resource Rights, Efficiency, and Social Optimality

This chapter provides the evolution and status of the misuse of the term "optimal depletion". It describes a simple two-generation, three-period general equilibrium model to illustrate how alternative distributions of resource rights between generations relate to alternative Pareto efficient solutions. The chapter demonstrates how different social welfare functions affect the optimal solution and associated assignment of resource rights between generations. It examines the conditions of social optimality for people model under two hypothetical social welfare functions: the additive utility function and the maximin function. The chapter also demonstrates how alternative assignments of resource rights between generations would affect resource use over time. In resource economics, however, the line demarcating efficiency and equity is often crossed. Generations necessarily overlap, thereby generating opportunities for intergenerational exchange, although the resulting exchange may be imperfectly competitive. Competitive exchange in natural resource markets gives rise not to a single efficient allocation but rather to an infinite number of efficient allocations.