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Assessing Dynamic Efficiency: Theory and Evidence

Listed author(s):
  • Andrew B. Abel
  • N. Gregory Mankiw
  • Lawrence H. Summers
  • Richard J. Zeckhauser

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 growth are stochastic, involves a comparison of the cash flows generated by capital with the level of investment. Its application to the United States economy and the economies of other major OECD nations suggests that they are dynamically efficient.

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File URL: http://hdl.handle.net/10.2307/2297746
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Article provided by Oxford University Press in its journal The Review of Economic Studies.

Volume (Year): 56 (1989)
Issue (Month): 1 ()
Pages: 1-19

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Handle: RePEc:oup:restud:v:56:y:1989:i:1:p:1-19.
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  7. Martin Feldstein & Lawrence Summers, 1977. "Is the Rate of Profit Falling?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 8(1), pages 211-228.
  8. Feldstein, Martin S, 1977. "Does the United States Save too Little?," American Economic Review, American Economic Association, vol. 67(1), pages 116-121, February.
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  10. Summers, Lawrence H, 1986. " Does the Stock Market Rationally Reflect Fundamental Values?," Journal of Finance, American Finance Association, vol. 41(3), pages 591-601, July.
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