Date of this Version
Review of Economic Studies
The issue of dynamic efficiency is central to analyses of capital accumulation and economic growth. Yet the question of what characteristics should be examined to determine whether actual economies are dynamically efficient is unresolved. This paper develops a criterion for determining whether an economy is dynamically efficient. The criterion, which holds for economies in which technological progress and population growth are stochastic, involves a comparison of the cash flows generated by capital with the level of investment. Its application to the United States economy and the economies of other major OECD nations suggests that they are dynamically efficient.
This is a pre-copyedited, author-produced PDF of an article accepted for publication in Review of Economic Studies following peer review. The version of record is available online at: http://dx.doi.org/10.2307/2297746.
Abel, A. B., Mankiw, N., Summers, L. H., & Zeckhauser, R. J. (1989). Assessing Dynamic Efficiency: Theory and Evidence. Review of Economic Studies, 56 (1), 1-19. http://dx.doi.org/10.2307/2297746
Date Posted: 27 November 2017
This document has been peer reviewed.