Wealth and population growth under dynamic average utilitarianism

Abstract

AbstractIn wealth accounting and sustainability assessments, we characterize the non-declining wealth criterion under dynamic average utilitarianism (DAU) as defined by Dasgupta (2001). Under DAU, the objective function consists of total intergenerational well-being divided by the present discounted sum of population from the present to the future. It is shown that, in order for an economy to be on a sustainable path, inclusive wealth should grow at a rate higher than the difference between the discount rate and the share of current population of the discounted future population. Our application to the inclusive wealth index shows that, among other results, the DAU criterion changes sustainability assessments for some developing countries with future demographic change, implying that wealth does not accumulate sufficiently in light of DAU. We also show empirical estimates of the value of population change under total utilitarianism, average utilitarianism, and DAU.