Savings growth and the path of utility

Authors: Hamilton, Kirk¹; Withagen, Cees²

Source: Canadian Journal of Economics, Volume 40, Number 2, May/mai 2007 , pp. 703-713(11)

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Abstract:

Abstract.

We derive an expression relating the change in instantaneous utility to the growth of net (genuine) saving in an economy with multiple stocks and externalities that maximizes welfare in the utilitarian sense. This result is then shown to hold for decentralized competitive efficient economies as well, to yield an extension of the Hartwick rule: instantaneous utility is non-declining along a development path if genuine saving is decreasing. By way of example the rule is applied as a constant genuine saving rate rule in a simple Dasgupta-Heal-Solow-Stiglitz economy. The rule yields a path with unbounded consumption and higher wealth than on the standard Hartwick constant consumption path.

Keywords: Q01; Q56; O13

Document Type: Research article

DOI: http://dx.doi.org/10.1111/j.1365-2966.2007.00427.x

Affiliations: 1: World Bank 2: Department of Economics, Tilburg University

Publication date: 2007-05-01