Exact Measures of Income in Two Capital-Resource Economies
AbstractExact optimal paths are calculated for two closed, continuous-time economies with explicit functional forms for utility from consumption, and for production from human-made capital and a non-renewable resource. Features of the first economy are non-linear utility, hyperbolic utility discounting and (possibly) hyperbolic technical progress. In it: (a) welfare-equivalent income > wealthequivalent income > Sefton-Weale income > Net National Product, confirming that even if income is viewed only as a measure of prosperity, there is no point in trying to define it uniquely; (b) the Solow (1974) constant consumption path is a special case for a particular discount rate; (c) for a low enough discount rate, sustained growth is optimal even when technical progress is zero. The second economy has linear utility, a non-linear output split between consumption and investment, and exponential technical progress. In it, (a) Weitzman’s (1997) technological progress premium works only if an upwards correction factor is first applied to the rate of progress in production, to convert it to a rate of progress in Net National Product; (b) Hartwick’s rule has an unfamiliar form.
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Bibliographic InfoPaper provided by Australian Agricultural and Resource Economics Society in its series 2001 Conference (45th), January 23-25, 2001, Adelaide with number 125834.
Date of creation: Jan 2001
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