The Zilcha criteria for dynamic inefficiency reconsidered |
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Authors: | Martin Barbie Ashok Kaul |
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Affiliation: | (1) Department of Economics, University of Karlsruhe, 76128 Karlsruhe, Germany;(2) Department of Economics - FB 03, Gutenberg University Mainz, 55099 Mainz, Germany;(3) IEW, University of Zurich, Zurich, Switzerland |
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Abstract: | We reconsider necessary and sufficient conditions for dynamic inefficiency given in Zilcha (J Econ Theory 52:364–379, 1990, J Econ Theory 55:1–16, 1991) and a critique by Rangazas and Russell (2005). First, we show that the characterization given in Zilcha (1990) for nonstationary economies is correct and correct Zilcha’s proof. Second, using this insight, we complement Rangazas and Russell’s (Econ Theory 26:701–716, 2005) discussion of the counterexamples to Zilcha (J Econ Theory 55:1–16, 1991). Third, we discuss consequences of our results for applied tests of (in-)efficiency based on the Zilcha criteria. We would like to thank Itzhak Zilcha, and in particular Peter Rangazas and Steve Russell for detailed and very helpful comments. |
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Keywords: | Dynamic inefficiency Zilcha criterion Pareto optimality |
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