Working Paper

Constant Consumption and the Economic Depreciation of Natural Capital: The Non-Autonomous Case

Ngo Van Long, John M. Hartwick
CES, Munich, 1996

CES Working Paper No. 114

We investigate economic depreciation of natural capital for cases of non-stationary output prices, technology, and interest rates. For the former two cases (exogenous movements in prices and technology), constant consumption emerges under a strategy of investing to cover off economic depreciation. The interest rate case requires a modified sinking fund strategy.

Keywords: economic depreciation, natural capital, environment, constant consumption.