JOURNAL OF ENVIRONMENTAL ECONOMICS AND MANAGEMENT 7, 81-89 ( 1980) The Democratic Provision of Public and Private Goods from Exhaustible Resources HAIM &ALIT Department of Agricultural Economics, Hebrew University of Jerusalem, Rehovot, Israel Received July 16, 1979; revised January 27, 1980 The problem of distributing exhaustible natural resources between consumption goods and environmental amenities through a voting process is analyzed. Assuming that individuals are endowed with an equal share of private goods, the method of majority decision does not always achieve a Pareto-optimal distribution. However, by means of side payments, the intensity of preferences is revealed. The voting pro- cedure then leads to a Pareto-optimal solution which is more prone to environmental amenities than the simple method of majority decision. 1. INTRODUCTION The problem of defining optimal depletion rates for exhaustible resources has become a serious issue in recent times. Some natural resources, while serving as a primary factor in the production of private goods, also provide environ- mental amenities-a public good. In this case the problem of optimal allocation is thus to decide what portion of these resources is to be available for the pro- duction of private goods and what portion is to be left over for the provision of environmental amenities. As an example, consider an economy that possesses reserves of coal and must determine the rate of extraction over time. Assume, furthermore, that the existing extraction technology (strip-mining) results in irreversible environmental degradation. The agents in this economy must then select a rate of extraction that minimizes their utility with ecological arguments incorporated. The type of problem described above has been considered for the case of a well-defined social welfare function’ by Vousden [7] and by Lusky [3]. How- ever, individuals place different values on the existing stock of resources inde- pendently of the level of utility derived from consumption goods. As an alter- native, Neher [4] attempted to define a political scheme of exploitation for the case of a renewable resource. However, resource depletion decisions are often more crucial when dealing with exhaustible resources because of the added problem of irreversibility. Thus, an examination of the question of social choice with regard to optimal depletion of exhaustible resources is deemed desirable. ‘The Arrowian concept of a social welfare function is used here, i.e., a collective choice rule that specifies orderings for society (reflexivity, transitivity, and completeness of the preference relationship : see Sen [6]). 81 ~5-oSsS/80/020081-002.00/O CopTt 0 1980 by. Academic Press, Inc. All right.3 0 repmductron 111 any form reserved.