Investment rules and time invariance under population growth

Geir Asheim, John M. Hartwick & Tapan Mitra

Journal of Economic Dynamics and Control

Cover of Journal of Economic Dynamics and Control

Published in:

Journal of Economic Dynamics and Control, Volume 123, February 2021

DOI: https://doi.org/10.1016/j.jedc.2020.104048

Abstract

We propose an adaptation of Hartwick’s investment rule to models with population growth and show that following Hartwick’s rule is equivalent to a time-invariant real per capita net national product. In the so-called DHSS model of capital accumulation and resource depletion the proposed Hartwick’s rule equates the accumulation of per capita capital, net of the capital dilution effect of population growth, to the value of the depletion of the resource, gross of the capital dilution effect. We investigate why this asymmetry arises by analyzing a general model with multiple capital goods, in which we obtain a formulation of Hartwick’s investment rule where capital gains play a role if population growth is positive. Since capital gains accrue only to the resource but not to capital, we get the apparent asymmetry in the DHSS model. In both models we obtain as a corollary that keeping the value of net investments equal to zero leads to constant consumption if population is constant.

Published May 28, 2021 10:56 AM - Last modified May 28, 2021 10:56 AM