Assessing Dynamic Efficiency: Theory and Evidence
Andrew B. Abel
University of Pennsylvania - Finance Department; National Bureau of Economic Research (NBER)
N. Gregory Mankiw
Harvard University - Department of Economics; National Bureau of Economic Research (NBER)
Lawrence H. Summers
Harvard University; National Bureau of Economic Research (NBER)
Richard J. Zeckhauser
Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)
NBER Working Paper No. w2097
The issue of dynamic efficiency is central to analyses of capital accumulation and economic growth. Yet the question of what operating characteristics of an economy subject to productivity shocks should be examined to determine whether or not it is efficient has not been resolved. This paper develops criterion based on observables for determining whether or not an economy is dynamically efficient. The criterion involves a comparison of the cash flows generated by capital with the volume of investment. Its application to the United States economy and the economies of other major OECD nations suggests that they are dynamically efficient.
Number of Pages in PDF File: 41
Date posted: April 4, 2004
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