Stochastic National Income

Journal of Reviews on Global Economics. Vol. 1, pp. 112-123

12 Pages Posted: 4 Mar 2010 Last revised: 1 Jan 2013

See all articles by Taoyuan Wei

Taoyuan Wei

Center for International Climate and Environmental Research (CICERO)

Date Written: December 31, 2012

Abstract

How can national income be adjusted to indicate welfare improvement if the future is uncertain? The present paper extends the definition of national income to stochastic settings on the basis of discounted utilitarian welfare function. Real interest rate of consumption is redefined so that real national income can be interpreted as the expected present value of real interest on future national consumption. A stochastic one-good model is used to illustrate the application of the stochastic real national income. It turns out that under uncertainty real national income may be decreasing even though captial stock is constant or increasing over time.

Keywords: Stochastic income, comprehensive national accounting

JEL Classification: C43, D60, O47, P44

Suggested Citation

Wei, Taoyuan, Stochastic National Income (December 31, 2012). Journal of Reviews on Global Economics. Vol. 1, pp. 112-123, Available at SSRN: https://ssrn.com/abstract=1564097 or http://dx.doi.org/10.2139/ssrn.1564097

Taoyuan Wei (Contact Author)

Center for International Climate and Environmental Research (CICERO) ( email )

P.O. Box 1129 Blindern
Oslo, 0317
Norway

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