Efficiency conditions are derived for both private and public goods which provide benefits over time. In deriving these conditions, the paper extends the notion of efficiency to an intertemporal Pareto-optimal concept requiring the maximization of the ith individual's utility at a point of time subject to the constancy of his utility in all future periods and that of all other individuals during the relevant time span. By permitting births and deaths, a generalization of the basic model recasts the analysis into an intergenerational setting. Additional extensions involve learning by doing and perpetual public goods. The paper concludes that several of the conventional practices in public expenditure analysis do not conform to our definition of intertemporal Pareto efficiency.
ASJC Scopus subject areas
- Economics and Econometrics
- Management, Monitoring, Policy and Law