Intergenerational Equity and Sustainability in the Exploitation of Iran’s Oil Revenues
Torkamani, Esmael; Fotros, Mohammad Hassan (2016). 'Intergenerational Equity and Sustainability in the Exploitation of Iran's Oil Revenues' Paper presented at the annual conference of the HDCA, Tokyo 2016.
Justice, in different areas of the world, has been considered as a major issue. Orientation towards economic growth, regardless of the distribution of income, might somehow cause prejudices to justice. Lewis in 1955 argued about growth and Justice; "our first problem is growth not distribution." After a never-ending struggle between pro-growth and partisans of distributive justice, and demonstrate the effectiveness of injustice based on growth (poverty, unemployment) led to development economists; growth-oriented strategies with new ways are looked on with suspicion and as a replacement. Human Development Index of the effects of this strategy and attention to index of education and health, along with the growth, and to fulfill aspects of justice in the society. Modified human development index, revealed other dimensions of justice, including distributive justice, gender justice; but as the debate was raised in a generation. The next step in this evolution, which was also related to the environmental issues, bring up intergenerational justice at the center of discussions relating to the development, and believe that and the present generation to build more cautious in deciding how to exploit the resources. Considering these factors in development, create sustainable development. In achieving sustainable development of intergenerational equity is the most important factor.
There are two factors common to most discussions and definitions of sustainability. One is the need to follow development strategies consistent with the planet's endowments. A second common factor is an emphasis on equity, both within and between generations (Beltratti, Chichilnisky and Heal; 1993). In countries with natural resources, especially oil efficient operation of exhaustible resources a main issue. Iran is faced with the challenge as one of the countries with oil reserves. Iran's oil reserves about 151 billion barrels, where harvest daily about 4 million barrels. With the current trends will end almost a century after the oil resources of the country.
In this paper, we examine intergenerational equity and sustainability in the exploitation of Iran's oil revenues in the form of Hartwick’s rule. In his paper, Hartwick (1977) suggests that a rule, keeping investment equal to the rents from exhaustible resources, yields a path of constant consumption. For optimal allocation, maximize social welfare function Bentham of the welfare of both present and future generations, relative to limited access to resources.
According to a study Sato and Kim (2002), the society's objective is to solve the Benthamite problem of dynamic optimization with a positive discount rate. Based on the model, the social planner, maximizing the total discounted welfare of all generations from now to infinity with respect to resource constraints resulting from the accumulation of capital by the same generation takes place.
We need to the model calibrate to the real economy. To do this we will use the data Iranian economy. Existence constant returns to scale one of the basic assumptions optimal growth models, so must be selected constant returns to scale production function.That should be subject of constant returns to scale production because there are constant returns to scale, one of the basic assumptions optimal growth models. Cobb-Douglas production functions with constant coefficients used. According to studies in Iranian economy, discount rate equal 0.1, capital productivity factor 0.18 and income from oil exports productivity factor -0.12 been considered. Utility function used in this study, a constant relative risk aversion utility function of (CRRA).
Attention to intergenerational equity is determined by the discount rate. The greater value of this parameter is than the social planner for the welfare of future generations is less important than the welfare of the current generation. Hence, in order to maximize social welfare, with more intensity the future generation welfare tends to discount. The preferred rate reductions take steps to make justice more time.
By solving equations results show that; oil revenues and reserve capital relationship with discount rate, with increasing discount rate, the use of oil revenues rising and the reserve capital reduced. Followed by the level of savings and consumption will be reduced. Whatever the discount rate higher, consumption and utilization of oil revenues in the present more important of future. So in an intergenerational perspective, Iran's oil revenues not converter in capital accumulation and savings and reduce welfare and will not sustainable development for all future generations.