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On the Generalized Weitzman's Rule

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  • Mino, Kazuo

Abstract

Weitzman (1976) provides a foundation for net national product of a competitive economy as the annuity equivalent of the present discounted value of maximized consumption. This paper considers how Weitzman's rule should be modified if the competitive equilibrium is affected by the presence of market distortions. The paper first examines the model with external effects of capital in which there are spillovers of knowledge. The paper also studies the model with policy interventions where the policy maker seeks the second best allocation. The central concern of the paper is to elucidate the factors that generate a divergence between net national product and the welfare equivalence of maximized consumption. In discussing each model, the paper presents a typical example that has been widely discussed in the literature.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 16996.

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Date of creation: Mar 2004
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Handle: RePEc:pra:mprapa:16996

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Keywords: Weitzman's rule; net national product; externalities; policy distortions;

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References

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  1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  2. 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.
  3. Pemberton, Malcolm & Ulph, David, 2001. " Measuring Income and Measuring Sustainability," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(1), pages 25-40, March.
  4. Mino, Kazuo, 2001. "Optimal taxation in dynamic economies with increasing returns," Japan and the World Economy, Elsevier, vol. 13(3), pages 235-253, August.
  5. Asheim, Geir, 2003. "Green national accounting for welfare and sustainability: A taxonomy of assumptions and results," Memorandum 31/2002, Oslo University, Department of Economics.
  6. Asheim, Geir B, 1994. " Net National Product as an Indicator of Sustainability," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(2), pages 257-65.
  7. John C. V. Pezzey, 2002. "Measuring Technical Progress in Gross and Net Products," Economics and Environment Network Working Papers 0202, Australian National University, Economics and Environment Network.
  8. Thomas Aronsson & Karl-Gustaf Löfgren, 1995. "National product related welfare measures in the presence of technological change: Externalities and uncertainty," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 5(4), pages 321-332, June.
  9. Kevin J. Lansing, 1998. "Optimal redistributive capital taxation in a neoclassical growth model," Working Papers in Applied Economic Theory 99-01, Federal Reserve Bank of San Francisco.
  10. Sato, Ryuzo, 1985. "The invariance principle and income-wealth conservation laws : Application of Lie groups and related transformations," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 365-389.
  11. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, Econometric Society, vol. 54(3), pages 607-22, May.
  12. Mino, Kazuo, 2001. "On Time Consistency in Stackelberg Differential Games," MPRA Paper 17028, University Library of Munich, Germany.
  13. Hulten, Charles R, 1992. " Accounting for the Wealth of Nations: The Net versus Gross Output Controversy and Its Ramifications," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(0), pages S9-24, Supplemen.
  14. Hartwick, John M, 1994. " National Wealth and Net National Product," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(2), pages 253-56.
  15. Aronsson, Thomas & Lofgren, Karl-Gustaf, 1996. " Social Accounting and Welfare Measurement in a Growth Model with Human Capital," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(2), pages 185-201, June.
  16. Asheim, Geir B, 1997. " Adjusting Green NNP to Measure Sustainability," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(3), pages 355-70, September.
  17. Kehoe, Timothy J & Levine, David K & Romer, Paul M, 1992. "On Characterizing Equilibria of Economies with Externalities and Taxes as Solutions to Optimization Problems," Economic Theory, Springer, vol. 2(1), pages 43-68, January.
  18. Hartwick, John M & Long, Ngo Van, 1999. "Constant Consumption and the Economic Depreciation of Natural Capital: The Nonautonomous Case," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(1), pages 53-62, February.
  19. M. L. Weitzman, 1974. "On the Welfare Significance of National Product in Dynamic Economy," Working papers 125, Massachusetts Institute of Technology (MIT), Department of Economics.
  20. Basu, Susanto & Fernald, John G, 1997. "Returns to Scale in U.S. Production: Estimates and Implications," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 105(2), pages 249-83, April.
  21. Weitzman, Martin L, 1997. " Sustainability and Technical Progress," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(1), pages 1-13, March.
  22. Sato, Ryuzo & Kim, Youngduk, 2002. "Hartwick's rule and economic conservation laws," Journal of Economic Dynamics and Control, Elsevier, vol. 26(3), pages 437-449, March.
  23. Dixit, Avinash & Hammond, Peter & Hoel, Michael, 1980. "On Hartwick's Rule for Regular Maximin Paths of Capital Accumulation and Resource Depletion," Review of Economic Studies, Wiley Blackwell, vol. 47(3), pages 551-56, April.
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