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National product related welfare measures in the presence of technological change: Externalities and uncertainty

  • Thomas Aronsson
  • Karl-Gustaf Löfgren
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    The purpose of this paper is to discuss under what conditions welfare can be measured by observables related to the national product (or Hamiltonian along the optimal trajectory). Under nonattributable technological or environmental change, welfare will depend on time itself, meaning that the Hamiltonian along the optimal trajectory will be a biased measure of welfare. This result will also hold if we make the time dependence of welfare endogenous, by replacing technological change will externalities that are not internalized during optimization. On the other hand, if we take the externalities fully into account, then the Hamiltonian will represent the appropriate measure of welfare. Similar results also hold in the case of uncertainty, where we show that a ‘generalized’ Hamiltonian provides a welfare measure, and that the deterministic measures are special cases of their stochastic counterparts. Copyright Kluwer Academic Publishers 1995

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    File URL: http://hdl.handle.net/10.1007/BF00691572
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    Article provided by European Association of Environmental and Resource Economists in its journal Environmental & Resource Economics.

    Volume (Year): 5 (1995)
    Issue (Month): 4 (June)
    Pages: 321-332

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    Handle: RePEc:kap:enreec:v:5:y:1995:i:4:p:321-332
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    1. Merton, Robert C., 1973. "An asymptotic theory of growth under uncertainty," Working papers 673-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    2. 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.
    3. Asheim, G.B. & Brekke, K.A., 1993. "Sustainability when Resource Management has Stochastic Consequences," Papers 01-93, Norwegian School of Economics and Business Administration-.
    4. 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.
    5. Magill, Michael J. P., 1977. "Some new results on the local stability of the process of capital accumulation," Journal of Economic Theory, Elsevier, vol. 15(1), pages 174-210, June.
    6. John M. Hartwick, 1990. "Natural Resources, National Accounting and Economic Depreciation," Working Papers 771, Queen's University, Department of Economics.
    7. William A. Brock & Michael J. P. Magill, 1978. "Dynamics Under Uncertainty," Discussion Papers 324, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    8. Asheim, Geir B, 1994. " Net National Product as an Indicator of Sustainability," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(2), pages 257-65.
    9. Karl-Göran Mäler, 1991. "National accounts and environmental resources," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 1(1), pages 1-15, March.
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