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On welfare criteria and optimality in an endogenous growth model

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Del Rey Canteli, Elena [University of Girona] Lopez-Garcia, Miguel-Angel [Autonomous University of Barcelona]

In this paper, we explore the consequences for optimality of a social planner adopting two different welfare criteria. The framework of analysis is an overlapping generations model with physical and human capital. We first show that, when the social welfare function is a discounted sum of individual utilities defined over consumption per unit of natural labor, the precise cardinalization of the individual utility function becomes crucial for both the characterization of the social optimum and the policies that support it. Also, decentralizing the social optimum requires an education subsidy that is definitely positive, but its size depends in a determinant way on the aforementioned cardinalization. In contrast, when the social welfare function is a discounted sum of individual utilities defined over consumption per unit of efficient labor, the precise cardinalization of preferences becomes irrelevant. More strikingly, along the optimal growth path, the education subsidy is negative, i.e., the planner should tax rather than subsidize investments in human capital.

Document type Article de périodique (Journal article) – Article de recherche
Access type Accès interdit
Publication date 2012
Language Anglais
Journal information "Journal of Public Economic Theory" - Vol. 14, no.6, p. 927-943 (2012)
Peer reviewed yes
Publisher Wiley-Blackwell Publishing, Inc. ((United States) Hoboken)
issn 1097-3923
e-issn 1467-9779
Publication status Publié
Affiliation UCL - SSH/LIDAM/CORE - Center for operations research and econometrics
Links
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Bibliographic reference Del Rey Canteli, Elena ; Lopez-Garcia, Miguel-Angel. On welfare criteria and optimality in an endogenous growth model. In: Journal of Public Economic Theory, Vol. 14, no.6, p. 927-943 (2012)
Permanent URL http://hdl.handle.net/2078.1/135152