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Genuine saving under stochastic growth

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  • Chuan-Zhong Li
  • Karl-Gustaf Löfgren

Abstract

The concept of genuine saving has in recent years become widely accepted as a dynamic welfare indicator, which first appeared in Weitzman (Q. J. Econ. 99:1–13, 1976 ) and then formalized by Pearce and Atkinson (Ecol. Econ. 8:103–108, 1993 ). This paper attempts to generalize this concept in a stochastic setting using an extended version of the standard Ramsey growth model (Merton in Rev. Econ. Stud. 42:375–379, 1975 ). We find that the genuine saving formula in a stochastic setting also involves a variance component reflecting the welfare loss from risk aversion. Copyright Springer-Verlag 2012

Suggested Citation

  • Chuan-Zhong Li & Karl-Gustaf Löfgren, 2012. "Genuine saving under stochastic growth," Letters in Spatial and Resource Sciences, Springer, vol. 5(3), pages 167-174, October.
    • Handle: RePEc:spr:lsprsc:v:5:y:2012:i:3:p:167-174
    DOI: 10.1007/s12076-012-0080-5
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    References listed on IDEAS

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    1. Hamilton, Kirk & Clemens, Michael, 1999. "Genuine Savings Rates in Developing Countries," The World Bank Economic Review, World Bank, vol. 13(2), pages 333-356, May.
    2. Kenneth J. Arrow & Partha Dasgupta & Karl-Göran Mäler, 2003. "The genuine savings criterion and the value of population," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 21(2), pages 217-225, March.
    3. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 70(1), pages 65-94.
    4. T. W. Swan, 1956. "ECONOMIC GROWTH and CAPITAL ACCUMULATION," The Economic Record, The Economic Society of Australia, vol. 32(2), pages 334-361, November.
    5. Turnovsky, Stephen J. & Smith, William T., 2006. "Equilibrium consumption and precautionary savings in a stochastically growing economy," Journal of Economic Dynamics and Control, Elsevier, vol. 30(2), pages 243-278, February.
    6. Pearce, David W. & Atkinson, Giles D., 1993. "Capital theory and the measurement of sustainable development: an indicator of "weak" sustainability," Ecological Economics, Elsevier, vol. 8(2), pages 103-108, October.
    7. Giles Atkinson & Kirk Hamilton, 2007. "Progress along the path: evolving issues in the measurement of genuine saving," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 37(1), pages 43-61, May.
    8. Martin L. Weitzman, 1976. "On the Welfare Significance of National Product in a Dynamic Economy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 90(1), pages 156-162.
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    10. Robert C. Merton, 1975. "An Asymptotic Theory of Growth Under Uncertainty," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 42(3), pages 375-393.
    11. Heal, Geoffrey & Kristrom, Bengt, 2005. "National income and the environment," Handbook of Environmental Economics, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 3, chapter 22, pages 1147-1217, Elsevier.
    12. Hayne E. Leland, 1968. "Saving and Uncertainty: The Precautionary Demand for Saving," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 82(3), pages 465-473.
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    Cited by:

    1. Aronsson, Thomas & Johansson-Stenman, Olof, 2014. "Genuine Saving and Conspicuous Consumption," Working Papers in Economics 605, University of Gothenburg, Department of Economics.

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    More about this item

    Keywords

    Genuine saving; Stochastic growth; Welfare measurement; D6; O40;
    All these keywords.

    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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