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
Date Written: December 31, 2012
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: Suggested Citation