In a seminal contribution Abel, Mankiw, Summers, and Zeckhauser (1989) show that from an aggregate dynamic perspective the US economy is Pareto efficient. We argue that, when applying their test, they implicitly make strong assumptions about the economy's future behavior. We show how time series evidence may easily lead to wrong conclusions about the welfare properties of real world economies.We present a test criterion based on Zilcha (1991) and robust evidence that the US economy does not overaccumulate capital. Our contribution highlights that the distinction between efficient capital accumulation and Pareto efficiency is empirically relevant. The latter efficiency benchmark - encompassing also risk sharing issues - cannot be rigorously tested based on available approaches in the literature.
We characterize the preference domains on which the Borda count satisfies Arrow's "independence of irrelevant alternatives" condition. Under a weak richness condition, these domains are obtained by fixing one preference ordering and including all its cyclic permutations ("Condorcet cycles"). We then ask on which domains the Borda count is non-manipulable. It turns out that it is non-manipulable on a broader class of domains when combined with appropriately chosen tie-breaking rules. On the other hand, we also prove that the rich domains on which the Borda count is non-manipulable for all possible tie-breaking rules are again the cyclic permutation domains.
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.Keywords Dynamic inefficiency · Zilcha criterion · Pareto optimalityWe would like to thank Itzhak Zilcha, and in particular Peter Rangazas and Steve Russell for detailed and very helpful comments.
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