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The linearised Hamiltonian as comprehensive NDP

Published online by Cambridge University Press:  01 February 2000

MARTIN L. WEITZMAN
MARTIN L. WEITZMAN
Affiliation:
Department of Economics, Harvard University, Cambridge, MA 02138 USA
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Abstract

For guidance in determining which items should be included in comprehensive NDP (net domestic product) and how they should be included, reference is often made to the linearised Hamiltonian from an optimal growth problem. The paper gives a rigorous interpretation of this procedure in terms of a money-metric utility function linked to familiar elements of standard welfare theory. A key insight is that the Hamiltonian itself is a quasilinear utility function, so imposing the money-metric normalisation is simply equivalent to using Marshallian consumer surplus as the appropriate measure of welfare when there are no income effects. The twin concepts of the ‘sustainability-equivalence principle’ and the ‘dynamic welfare-comparison principle’ are explained, and it is indicated why these two principles are important for the theory of national income accounting.

Type
Research Article
Information
Environment and Development Economics , Volume 5 , Issue 1 , February 2000 , pp. 55 - 68
Copyright
© 2000 Cambridge University Press

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Footnotes

Thanks to Partha Dasgupta and Karl-Göran Mäler for getting me interested in this topic. By the end of the process I hope that more light than heat has been shed, but I apologise to them for the excessive heat I generated at the beginning.