Sustainable Consumption with an Essential Exhaustible Resource Re-Examined

Abstract

This study derives conditions for existence of a positive sustainable consumption in an economy with an essential exhaustible resource. It does so by approximating technology with a variable elasticity of substitution production function, instead of the constant elasticity of substitution specification widely assumed in previous studies. This approach permits examination of the robustness of results previously derived in the literature to key technological assumptions. It also generates new insights regarding the role of substitutability and technical progress on existence. We find that a capital-resource elasticity of substitution greater than one is sufficient for existence even when the resource is strictly essential; a situation precluded by constant elasticity of substitution specifications. Under an elasticity of substitution lower than one, existence can still be attained (in contrast to the constant elasticity of substitution case) but only through capital-augmenting technical progress. Hicks-neutral technical progress is neither necessary nor sufficient for existence. A sufficiently high resource-augmenting technical progress thwarts existence of a positive sustainable consumption.