Stochastic National Income
DOI:
https://doi.org/10.6000/1929-7092.2012.01.10Keywords:
Stochastic income, comprehensive national accountingAbstract
Abstract: How can national income be adjusted to indicate welfare improvement if the future is uncertain? The present paper extends the definition of national income to stochastic settings on the basis of discounted utilitarian welfare function. Real interest rate of consumption is redefined so that real national income can be interpreted as the expected present value of real interest on future national consumption. A stochastic one-good model is used to illustrate the application of the stochastic real national income. It turns out that under uncertainty real national income may be decreasing even though captial stock is constant or increasing over time.
References
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http://dx.doi.org/10.1111/1467-9442.00228
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http://dx.doi.org/10.1111/j.1467-937X.2006.00375.x
Weitzman, M.L. (1976), On the welfare significance of national product in a dynamic economy, Quarterly Journal of Economics 90, 156-162.
http://dx.doi.org/10.2307/1886092
Weitzman L.M (2003), Income, wealth, and the maximum principle. Harvard University Press, Cambridge, Massachusetts, London.
Øksendal, B. (2005), Stochastic differential equations; an introduction with applications. Sixth Edition, Universitext; Springer Verlag
http://dx.doi.org/10.1111/1467-9442.00068
Asheim, G.B (2007), Can NNP be used for welfare comparisons? Environment and Development Economics 12: 11-31.
http://dx.doi.org/10.1017/S1355770X06003366
Asheim, G.B. and Wei, T. (2009), Sectoral income. Environmental and Resource Economics (2009) 42: 65-87.
http://dx.doi.org/10.1007/s10640-008-9204-1
Arrow, K., P.S. Dasgupta, and K.-G. Maler (2003), Evaluating projects and assessing sustainable development in imperfect economies, Environmental and Resource Economics 26: 647-685.
http://dx.doi.org/10.1023/B:EARE.0000007353.78828.98
Dasgupta, P.S. (2001), Valuing objects and evaluating policies in imperfect economies, Economic Journal 111, C1-C29.
http://dx.doi.org/10.1111/1468-0297.00617
Dasgupta, P. (2009). ""The Welfare Economic Theory of Green National Accounts."" Environmental & Resource Economics 42(1): 3-38.
http://dx.doi.org/10.1007/s10640-008-9223-y
Dasgupta, P.S. and Mäler, K.-G. (2000), Net national product, wealth, and social well-being, Environment and Development Economics 5, 69-93.
http://dx.doi.org/10.1017/S1355770X00000061
Fisher, I. (1906), The Nature of Capital and Income. Macmillan, New York.
Hamilton, K. (1994), Green adjustments to GDP. Resources Policy 20, pp.155-168.
http://dx.doi.org/10.1016/0301-4207(94)90048-5
Hicks, J. (1946), Value and capital, 2nd edition. Oxford University Press, Oxford.
Lindahl, E. (1933), The concept of income, in Bagge, G. (ed.), Economic Essays in Honor of Gustav Cassel. George Allen & Unwin, London.
Pemberton, M. and Ulph, D. (2001), Measuring income and measuring sustainability, Scandinavian Journal of Economics 103, 25-40.
http://dx.doi.org/10.1111/1467-9442.00228
Samuelson, P. (1961), The evaluation of ‘social income’: Capital formation and wealth, in F.A. Lutz and D.C. Hague (eds.), The Theory of Capital, St. Martin’s Press, New York.
Sefton, J.A. and Weale, M.R. (2006), The concept of income in a general equilibrium. Review of Economic Studies, 73, 219-249.
http://dx.doi.org/10.1111/j.1467-937X.2006.00375.x
Weitzman, M.L. (1976), On the welfare significance of national product in a dynamic economy, Quarterly Journal of Economics 90, 156-162.
http://dx.doi.org/10.2307/1886092
Weitzman L.M (2003), Income, wealth, and the maximum principle. Harvard University Press, Cambridge, Massachusetts, London.
Øksendal, B. (2005), Stochastic differential equations; an introduction with applications. Sixth Edition, Universitext; Springer Verlag
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Published
2012-11-06
How to Cite
Wei, T. (2012). Stochastic National Income. Journal of Reviews on Global Economics, 1, 112–123. https://doi.org/10.6000/1929-7092.2012.01.10
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