On the Generalized Weitzman's Rule

Mino, Kazuo (2004): On the Generalized Weitzman's Rule.

Abstract

Weitzman (1976) provides a foundation for net national product of a competitive economy as the annuity equivalent of the present discounted value of maximized consumption. This paper considers how Weitzman's rule should be modified if the competitive equilibrium is affected by the presence of market distortions. The paper first examines the model with external effects of capital in which there are spillovers of knowledge. The paper also studies the model with policy interventions where the policy maker seeks the second best allocation. The central concern of the paper is to elucidate the factors that generate a divergence between net national product and the welfare equivalence of maximized consumption. In discussing each model, the paper presents a typical example that has been widely discussed in the literature.

• Item Type: MPRA Paper
• Language: English
• Keywords: Weitzman's rule, net national product, externalities, policy distortions
• Subjects: D - Microeconomics > D6 - Welfare Economics > D62 - Externalities; C - Mathematical and Quantitative Methods > C4 - Econometric and Statistical Methods: Special Topics > C43 - Index Numbers and Aggregation; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence

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