resource economics Natural resource economics deals with the supply, demand, and allocation of the Earth's natural resources. One main objective of natural resource economics is to better understand the role of natural resources in the economy in order to devel ...

, Hartwick's rule defines the amount of investment in produced capital (buildings, roads, knowledge stocks, etc.) that is needed to exactly offset declining stocks of

non-renewable resources A non-renewable resource (also called a finite resource) is a natural resource that cannot be readily replaced by natural means at a pace quick enough to keep up with consumption. An example is carbon-based fossil fuels. The original organic mat ...

. This investment is undertaken so that the standard of living does not fall as society moves into the indefinite future. Solow (1974) shows that, given a degree of substitutability between produced capital and natural resources, one way to design a

sustainable consumption Sustainable consumption (sometimes abbreviated to "SC") is the use of products and services in ways that minimize impacts on the environment in order for human needs to be met in the present but also for future generations. Sustainable consumption ...

program for an economy is to accumulate produced capital sufficiently rapidly so that the pinch from the shrinking exhaustible resource stock is precisely countered by the services from the enlarged produced capital stock. Hartwick's rule – often abbreviated as "invest resource rents" – requires that a nation invest all rent earned from exhaustible resources currently extracted, where "rent" is defined along paths that maximize returns to owners of the resource stock. The rule extends to the case of many types of capital goods, including a vector of stocks of

natural capital Natural capital is the world's stock of natural resources, which includes geology, soils, air, water and all living organisms. Some natural capital assets provide people with free goods and services, often called ecosystem services. All of t ...

. The difference between total investment in some kinds of capital and total

disinvestment Disinvestment refers to the use of a concerted economic boycott to pressure a government, industry, or company towards a change in policy, or in the case of governments, even regime change. The term was first used in the 1980s, most commonly in ...

in other types of capital has been labelled " genuine savings". Genuine savings has been estimated for many countries by the

World Bank The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Inte ...

and other authors (Hamilton and Atkinson, 2006, chapter 6). A positive value for a nation's genuine savings has been linked to the possibility of long-run economic sustainability.

References

* * * * * * *{{cite journal , last1=Withagen , first1=Cees , first2=Geir B. , last2=Asheim , year=1998 , title=Characterizing Sustainability: The Converse of Hartwick's Rule , journal=Journal of Economic Dynamics and Control , volume=23 , issue=1 , pages=159–65 , doi= 10.1016/s0165-1889(97)00109-7 Resource economics Non-renewable resources