Analysis of sustainable development: an overlapping generations model of agricultural households in developing countries

Abstract

Abstract This article examines the effectiveness of individual transferable quotas (ITQs) in promoting sustainable resource management within an overlapping generations economy where agricultural producers face credit constraints. The analysis shows that, although ITQs restore the social optimum when markets are complete, their effectiveness breaks down when credit constraints bind. Credit frictions create a wedge between the marginal product of the resource and its effective price, leading constrained agents to underinvest in quotas and generating resource misallocation. As a result, ITQs alone are insufficient to ensure environmental preservation without compromising welfare. The study therefore shows that policies improving credit access, such as loan guarantees, are necessary complements to ITQ systems if sustainable resource management is to be achieved.