On the Generalized Weitzman's Rule
AbstractWeitzman (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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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 16996.
Date of creation: Mar 2004
Date of revision:
Weitzman's rule; net national product; externalities; policy distortions;
Find related papers by JEL classification:
- D62 - Microeconomics - - Welfare Economics - - - Externalities
- C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
- O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
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