Scandinavian Working Papers in Economics

Umeå Economic Studies,
Umeå University, Department of Economics

No 779: Genuine Saving under Stochastic Growth

Chuan-Zhong Li () and Karl-Gustaf Löfgren ()
Additional contact information
Chuan-Zhong Li: Department of Economics, Postal: Uppsala University, Box 513, SE-751 20 Uppsala, Sweden
Karl-Gustaf Löfgren: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden

Abstract: The concept of genuine saving appeared for the first time in a proof of a now well known theorem in Weitzman (1976). It was reinvented and used as a local welfare indicator by Pearce and Atkinson (1993). The purpose of this paper is to generalize this welfare measure to a stochastic Brownian motion context. We will use a stochastic version of a growth model introduced by Ramsey (1928). The particular model was developed by Merton (1975). Although the model is simple, it is enough to understand what its welfare results will look like in a general case.

Keywords: Welfare measures under growth and uncertainty; diversified risk versus undiversified risk

JEL-codes: D60; O40

9 pages, August 13, 2009

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