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Conditions for Sustainable Optimal Economic Development

Review of Development Economics, Vol. 10, No. 3, pp. 518-534, August 2006
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Metric Options:   Counts1 Year3 Year

Metrics Details

  • Usage
    2,314
    • Abstract Views
      2,035
    • Downloads
      279
  • Captures
    4
    • Readers
      4
      • SSRN
        4
  • Ratings
    • Download Rank
      219,432

Paper Description

This paper shows that, for dynamic optimizing economies with different types of natural resource, environmental, and human-made capital stocks, a necessary and sufficient condition for permanently sustaining an optimal utility/consumption level is the stationarity of the current-value Hamiltonian. For economies whose development is not exogenously and directly affected by time (i.e., time-autonomous economies), this stationarity condition generalizes Dixit et al.'s (1980) zero-net-aggregate-investment rule of sustainability, which in turn generalizes Solow-Hartwick's sustainability rule. For non-autonomous economies, the stationarity condition is not generally fulfilled, and the current-value Hamiltonian under (over) estimates the true welfare level by an amount equal to the discounted value of the net pure time effect. For the non-autonomous case of a time-dependent utility discount rate, a general condition on the discount rate function (of which the hyperbolic discount rate function is a special case) upholds the results obtained for autonomous cases. The paper concludes with a discussion of policies that promote both optimality and sustainability objectives.

Bibliographic Details

Y. Hossein Farzin

Sustainablity conditions; Optimal path; Hamiltonian value; Stationarity condition; Hyperbolic discounting; Green accounting; Intergenerational equity; Social welfare

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