Assets, Beliefs, and Equilibria in Economic Dynamics
Mordecai Kurz, Joan Kenney Professor of Economics at Stanford University, USA The genuine savings criterion and the value of population * l 2 3 Kenneth J. Arrow, Partha Dasgupta, and Karl-Goran Maler 1 Department of Economics, Stanford University, Stanford, CA 94305-6072, USA (e-mail: arrow@stanford. edu) 2 Faculty of Economics and Politics, University of Cambridge, Cambridge CB3 9DE, UK (e-mail: partha. dasgupta@econ. cam. ac. uk) 3 Stockholm School of Economics and Beijer International Institute for Ecological Economics, Royal Academy of Sciences, Box 50005, 10691 Stockholm, SWEDEN (e-mai: Karl@Beijer. kva. se) Received: June 1,2002; revised version: September 27,2002 Summary. In any dynamic model of the economy with changing population, the latter should properly be one of the state variables of the system. It enters both in the maximand, at least under total utilitarianism, and into the production function in one way or another. If population growth is exponential and constant returns prevails, then a simple transformation to per capita variables can be used to eliminate one state variable, but this ceases to be true if growth is not exponential, as it obviously is not and cannot be. If the growth of population is exogenous, then introducing it into the system does not affect the optimal policy.