THE RISE, FALL AND SUSTAINABILITY OF CAPITAL-RESOURCE ECONOMIES

In debates about green accounting it is sometimes argued that a positi ve value of aggregate investments indicates that an economy is develop ing sustainably. Asheim (1994) and Pezzey (1994) have shown that this is wrong, using a version of the well-known Dasgupta-Heal economy (wit h one capital and one non-renewable resource stock) as a counterexampl e. Asheim's proof referred to the unproved assumptions that in such an economy a higher rate of time preference induces higher initial consu mption and vice versa, and that ''optimal'' consumption is initially r ising and then falling. Here we show that these assumptions do hold tr ue under certain circumstances, thereby also proving some of Dasgupta and Heal's other conjectures about sustainability.