Savings Growth and the Path of Utility

K. Hamilton, C.A.A.M. Withagen

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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. © 2007 The Canadian Economics Association.
Original languageEnglish
Pages (from-to)703-713
Number of pages10
JournalCanadian Journal of Economics
Volume40
Issue number2
DOIs
Publication statusPublished - 2007

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