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Abstract
We consider a closed, constant-technology, capital-resource economy
with resource stock amenity value, which would otherwise aim for conventionally,
PV-optimal development that maximises the present value of utility using a
constant discount rate. In this economy, we calculate the decentralised policy
instruments needed to achieve continuously zero net investment, and hence (by
Hartwick’s rule) sustainability in the form of constant utility. We also calculate the
environmental policy needed to internalise the resource’s amenity value: its natural
form is a subsidy on holding the stock. The sustainability policy comprises this
stock subsidy (needed if sustainability is to be maximal, though the subsidy will
be at a different level from that for environmental policy alone); and a consumption
tax which ultimately falls towards a 100% subsidy. The latter gives agents the
incentive needed to invest when the return on capital is less than the utility
discount rate. Neither a resource flow tax nor the resource stock subsidy on its
own has any power to achieve sustainability. As a preliminary, we clarify some
confusion in the literature about the relationship between PV-optimality and
Hartwick’s Rule, using an exact solution for illustration.