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Genuine saving under stochastic growth

Li, C.-Z. and K.G. Löfgren (2012). Letters in Spatial and Resource Sciences 5:167–174.

Abstract:

The concept of genuine saving has in recent years become widely accepted as a dynamic welfare indicator, which first appeared inWeitzman (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.

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Keywords: Genuine saving; Stochastic growth; Welfare measurement.

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