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On welfare criteria and optimality in an endogenous growth model

  • DEL REY, Elena


    (Universitat de Girona, Spain)

  • LOPEZ-GARCIA, Miguel ANgel


    (Universitat Autonoma de Barcelona, Spain)

In this paper we explore the consequences for optimality of a social planner adopting two different welfare criteria. The framework of analysis is an OLG model with physical and human capital. We first show that, when the SWF is a discounted sum of individual utilities defined over consumption per unit of natural labour, the precise cardinalization of the individual utility function becomes crucial for the characterization of the social optimum. Also, decentralizing the social optimum requires an education subsidy. In contrast, when the SWF is a discounted sum of individual utilities defined over consumption per unit of efficient labour, the precise cardinalization of preferences becomes irrelevant. More strikingly, along the optimal growth path, education should be taxed.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2010024.

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Date of creation: 01 May 2010
Date of revision:
Handle: RePEc:cor:louvco:2010024
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