Efficiency of conservationist measures: an optimist viewpoint

We consider an economy with a consumer good, capital, a natural resource that provides amenity values, and heterogeneous overlapping generations. We compare a benchmark grandfathering policy that ensures efficiency through privatization with a policy of enforced resource conservation. It is shown that (i) conservationist measures do not cause any Pareto inefficiency, irrespective of whether they pass a cost-benefit test. Moreover, it is shown that (ii) there exist Pareto optimal allocations that can only be reached through resource conservation, and not through competitive markets, irrespective of compensating income transfers. Finally, (iii) equivalence is demonstrated between strict resource conservation and non-dictatorship of the present generations over future generations as formalized in Chichilnisky's 'sustainable welfare function'. The results are shown to hold in both a first-best and a second-best setting. © 2003 Elsevier Science (USA). All rights reserved.