Hicksian traverse revisited: Conditions for the energy transition

Abstract

In this article, we analyze the transition dynamics, what Hicks called the traverse, from one equilibrium toward another one-and the conditions for such a transfer-in a bi-sectoral economy under technological shocks. To this end, we revisit the Hick Traverse model and add to it intersectoral relations in the form of intersectoral consumption of energy for both the energy and the manufacturing sector. We investigate two distinct assumptions about consumption behavior of manufactured goods. We show that our model extends Hicks' one and leads to the same condition for a good traverse path, independently from the net energy return. We highlight that energy production technologies nevertheless provide constrains on viable states of the economy and its maximal growth rate, and that energy consumption technologies impact investment and prices crucially.