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A note on wealth in a volatile economy

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  • M. Marsili

Abstract

I show that if the capital accumulation dynamics is stochastic a new term, in addition to that given by accounting prices, has to be introduced in order to derive a correct estimate of the genuine wealth of an economy. In a simple model with multiplicative accumulation dynamics I show that: 1) the value function is always a decreasing function of volatility 2) the accounting prices are affected by volatility 3) the new term always gives a negative contribution to wealth changes. I discuss results for models with constant elasticity utility functions. When the elasticity of marginal utility is larger than one, accounting prices increase with volatility whereas when it is less than one accounting prices decrease with volatility. These conclusions are not altered when adopting optimal saving rates.

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  • M. Marsili, 2008. "A note on wealth in a volatile economy," Papers 0804.2772, arXiv.org.
  • Handle: RePEc:arx:papers:0804.2772
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    File URL: http://arxiv.org/pdf/0804.2772
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    References listed on IDEAS

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    1. Jerusalem D. Levhari & T. N. Srinivasan, 1969. "Optimal Savings under Uncertainty," Review of Economic Studies, Oxford University Press, vol. 36(2), pages 153-163.
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    Cited by:

    1. Elettra Agliardi, 2011. "Sustainability in Uncertain Economies," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 48(1), pages 71-82, January.
    2. Partha Dasgupta, 2009. "The Welfare Economic Theory of Green National Accounts," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 42(1), pages 3-38, January.

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