Assessing Dynamic Efficiency: Theory and Evidence
The issue of dynamic efficiency is central to analyses of capital accumulation and economic growth. Yet the question of what characteristics should be examined to determine whether actual economies are dynamically efficient is unresolved. This paper develops a criterion for determining whether an economy is dynamically efficient. The criterion, which holds for economies in which technological progress and population are stochastic, involves a comparison of the cash flows generated by capital with the level of investment. Its application to the U.S. economy and the economies of other major OECD nations suggests that they are dynamically efficient. Copyright 1989 by The Review of Economic Studies Limited.
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Volume (Year): 56 (1989)
Issue (Month): 1 (January)
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