TY - JOUR

T1 - Exact measures of income in a hyperbolic economy

AU - Pezzey, John C.V.

PY - 2004/8

Y1 - 2004/8

N2 - For a closed economy with human-made capital, non-renewable resource depletion and (possibly) exogenous, hyperbolic technical progress as explicit-form inputs to a production function, there is a feasible development path that is 'as if' optimal with respect to hyperbolic utility discounting. On this path, typically, welfare-equivalent income > wealth-equivalent income > Sefton-Weale income > net national product, with possibly dramatic differences among these measures; and sustainable income can be greater than, equal to, or less than NNP. For low enough discounting, growing consumption is optimal even when technical progress is zero. A particular discount rate makes all income measures and consumption constant and (except net national product) equal; and zero technical progress then gives the Solow (1974) maximin as a special case. The optimal path is time-consistent because of the way the utility discount rate is chosen to depend on the economy's stocks, and hence on absolute time.

AB - For a closed economy with human-made capital, non-renewable resource depletion and (possibly) exogenous, hyperbolic technical progress as explicit-form inputs to a production function, there is a feasible development path that is 'as if' optimal with respect to hyperbolic utility discounting. On this path, typically, welfare-equivalent income > wealth-equivalent income > Sefton-Weale income > net national product, with possibly dramatic differences among these measures; and sustainable income can be greater than, equal to, or less than NNP. For low enough discounting, growing consumption is optimal even when technical progress is zero. A particular discount rate makes all income measures and consumption constant and (except net national product) equal; and zero technical progress then gives the Solow (1974) maximin as a special case. The optimal path is time-consistent because of the way the utility discount rate is chosen to depend on the economy's stocks, and hence on absolute time.

UR - http://www.scopus.com/inward/record.url?scp=4344664670&partnerID=8YFLogxK

U2 - 10.1017/S1355770X04001470

DO - 10.1017/S1355770X04001470

M3 - Article

SN - 1355-770X

VL - 9

SP - 473

EP - 484

JO - Environment and Development Economics

JF - Environment and Development Economics

IS - 4

ER -