Conditions for Sustainable Optimal Economic Development
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 <link rid="b5">Dixit et al.'s (1980</link>) "zero-net-aggregate-investment" rule of sustain-ability, 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. Copyright © 2006 The Author; Journal compilation © 2006 Blackwell Publishing Ltd.
Year of publication: |
2006
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Authors: | Farzin, Y. Hossein |
Published in: |
Review of Development Economics. - Wiley Blackwell. - Vol. 10.2006, 3, p. 518-534
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Publisher: |
Wiley Blackwell |
Saved in:
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