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Exact Measures of Income in a Hyperbolic Economy

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Author Info
John C. V. Pezzey () (Australian National University, Centre for Resource and Environmental Studies, University of Bath, Department of Economics)
Abstract

Exact optimal paths are calculated for a closed economy with human-made capital, non-renewable resource depletion and exogenous technical progress in production, hyperbolic utility discounting, and (possibly) hyperbolic technical progress. On its optimal path, generally, welfare-equivalent income > wealth-equivalent income > Sefton-Weale income > NNP, with possibly dramatic differences among these measures; and sustainable income can be greater, equal or less than NNP. This supports the view that there can be no best, exact definition of income. For low enough discounting, growth is optimal even when technical progress is zero. A particular discount rate makes all income measures and consumption constant and (except NNP) equal; and zero technical progress then gives the Solow (1974) maximin as a special case. General problems with calculating sustainable income when there is technical progress are discussed, and the optimal path is time-consistent if the discount rate can depend on the economy's stocks and absolute time.

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Publisher Info
Paper provided by Australian National University, Economics and Environment Network in its series Economics and Environment Network Working Papers with number 0203.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 27 pages
Date of creation: Jan 2002
Date of revision:
Handle: RePEc:anu:eenwps:0203

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Web page: http://een.anu.edu.au/

For technical questions regarding this item, or to correct its listing, contact: (Jack Pezzey).

Related research
Keywords: national income; discounting; hyperbolic; accounting; sustainability;

Find related papers by JEL classification:
D90 - Microeconomics - - Intertemporal Choice and Growth - - - General
O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
  2. Tjalling C. Koopmans, 1959. "Stationary Ordinal Utility and Impatience," Cowles Foundation Discussion Papers 81, Cowles Foundation, Yale University. [Downloadable!]
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    Other versions:
  4. Hartwick, John M, 1977. "Intergenerational Equity and the Investing of Rents from Exhaustible Resources," American Economic Review, American Economic Association, vol. 67(5), pages 972-74, December. [Downloadable!] (restricted)
    Other versions:
  5. Pezzey, John C V & Withagen, Cees A, 1998. " The Rise, Fall and Sustainability of Capital-Resource Economies," Scandinavian Journal of Economics, Blackwell Publishing, vol. 100(2), pages 513-27, June. [Downloadable!] (restricted)
  6. Martin L. Weitzman, 2001. "Gamma Discounting," American Economic Review, American Economic Association, vol. 91(1), pages 260-271, March. [Downloadable!] (restricted)
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  7. William D. Nordhaus, 2000. "New Directions in National Economic Accounting," American Economic Review, American Economic Association, vol. 90(2), pages 259-263, May. [Downloadable!] (restricted)
  8. Asheim, Geir B., 2000. "Green national accounting: why and how?," Environment and Development Economics, Cambridge University Press, vol. 5(01), pages 25-48, February. [Downloadable!]
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  9. Sefton, J. A. & Weale, M. R., 1996. "The net national product and exhaustible resources: The effects of foreign trade," Journal of Public Economics, Elsevier, vol. 61(1), pages 21-47, July. [Downloadable!] (restricted)
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  10. Weitzman, Martin L, 1997. " Sustainability and Technical Progress," Scandinavian Journal of Economics, Blackwell Publishing, vol. 99(1), pages 1-13, March. [Downloadable!] (restricted)
  11. Vincent, Jeffrey R., 2000. "Green accounting: from theory to practice," Environment and Development Economics, Cambridge University Press, vol. 5(01), pages 13-24, February. [Downloadable!]
  12. R. M. Solow, 1973. "Intergenerational Equity and Exhaustable Resources," Working papers 103, Massachusetts Institute of Technology (MIT), Department of Economics.
  13. Weitzman, Martin L, 1976. "On the Welfare Significance of National Product in a Dynamic Economy," The Quarterly Journal of Economics, MIT Press, vol. 90(1), pages 156-62, February. [Downloadable!] (restricted)
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  14. Asheim, Geir B, 1997. " Adjusting Green NNP to Measure Sustainability," Scandinavian Journal of Economics, Blackwell Publishing, vol. 99(3), pages 355-70, September. [Downloadable!] (restricted)
  15. Norman Henderson & Ian Bateman, 1995. "Empirical and public choice evidence for hyperbolic social discount rates and the implications for intergenerational discounting," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 5(4), pages 413-423, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. John C. V. Pezzey, 2002. "A One-sided Sustainability Test With Multiple Consumption Goods," Working Papers in Ecological Economics 0201, Australian National University, Centre for Resource and Environmental Studies, Ecological Economics Program. [Downloadable!]
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