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Stochastic National Income

Author

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  • Taoyuan Wei

    (Center for International Climate and Environmental Research)

Abstract

How can national income be adjusted to indicate welfare improvement if the future is uncertain? The present paper extends the definition of national income to stochastic settings on the basis of discounted utilitarian welfare function. Real interest rate of consumption is redefined so that real national income can be interpreted as the expected present value of real interest on future national consumption. A stochastic one-good model is used to illustrate the application of the stochastic real national income. It turns out that under uncertainty real national income may be decreasing even though captial stock is constant or increasing over time

Suggested Citation

  • Taoyuan Wei, 2012. "Stochastic National Income," Journal of Reviews on Global Economics, Lifescience Global, vol. 1, pages 112-123.
    • Handle: RePEc:lif:jrgelg:v:1:y:2012:p:112-123
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    More about this item

    Keywords

    Stochastic income; comprehensive national accounting;

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • D60 - Microeconomics - - Welfare Economics - - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • P44 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - National Income, Product, and Expenditure; Money; Inflation

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