Dynamic efficiency
In economics, dynamic efficiency is achieved when an economy invests less than the return to
Are modern economies dynamically efficient?
Abel, Mankiw, Summers, and Zeckhauser (1989)[1] develop a criterion for addressing dynamic efficiency and apply this model to the United States and other OECD countries, suggesting that these countries are indeed dynamically efficient.
In the Solow growth model
An economy in the
In other models
The
The Diamond growth model is not necessarily dynamically efficient because of the overlapping generation setup. In a competitive equilibrium, the growth rate may exceed the interest rate, which entails dynamic inefficiency. This is because agents are finitely lived.[5] However, competitive allocations are dynamically efficient if one augments the Diamond model with land as an additional factor of production.[6]
References
- ^ JSTOR 2297746.
- ^ "Dynamic Efficiency Illustration". agecon2.tamu.edu. Retrieved 2016-05-03.
- ^ Syrneonidis, D., Innovation. Firm Size and Market Structure: Schumpeterian Hypotheses and Some New Themes, OECD Economic Studies No . 27. I996/11, accessed 20 January 2024
- ^ Sims, Eric. "Intermediate Macroeconomics: Economic Growth and the Solow Model" (PDF). Retrieved 24 July 2014.
- ^ Romer, David (2012). Advanced Macroeconomics (4 ed.).
- ^ Stefan Homburg (1991), Interest and Growth in an Economy with Land. Canadian Journal of Economics 24, pp. 450-459.