Assessing Dynamic Efficiency: Theory and Evidence

Andrew Abel, N. Gregory Mankiw, Lawrence H. Summers and Richard Zeckhauser

No 2097, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

Date: 1986-12
Note: EFG PR
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Published as Review of Economic Studies, Vol. 56, No. 1, pp. 1-20, (January 1989).

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