Hicksian Income from Resource Extraction in an Open Economy

Abstract

We derive a measure of national income, defined in terms of maximum sustainable per capita consumption. If population and interest rates are constant, the income generated by natural resource extraction is the return on resource wealth, defined as the present value of future resource rents. With a growing population or declining interest rate, sustainability requires net increases in wealth over time. The income from extraction of nonrenewable resources can exceed resource rents, contrary to the conclusions of El Serafy (1989) and Repetto et al. (1989). Finally, we present an example illustrating the hazard of consuming the full increment of Hicksian income.