Title Analysis of role of preferences for consumption and environmental quality, and the technological change for sustainable development within framework of optimal growth and resource allocation; revision of Hatwick rule and development of optimal growth model
 Collaborators Elena Shevliakova (Princeton) and Lester Lave (CMU)
 Keywords growth model, sustainability, resource allocation
 Abstract

Sustainability concerns raise issues of environmental quality and availability of natural resources for future generations. Economic growth based on exhaustible resource (e.g. fossil fuels) cannot continue indefinitely. Eventually, an inexhaustible energy (e.g. solar) resource will have to replace fossil fuels.

We consider two different neoclassical economic approaches to analyze the relationship between consumption, available resources, environmental quality and technological changes. The first approach is an extension of Hartwick's rule, a simple proposal for the investment of current exhaustible resources to guarantee constant consumption.

The second approach addresses optimal allocation of resources and technology investment for different preferences for consumption and environmental quality. We present an optimal growth model where the initial rise in income results from a finite stock of low cost "oil." Sustainability depends on a transition to "solar" energy. R&D can lower the costs of "solar energy."