Dynamic efficiency

In economics, dynamic efficiency is achieved when an economy invests less than the return to capital; conversely, dynamic inefficiency exists when an economy invests more than the return to capital. In dynamic efficiency, it is impossible to make one generation better off without making any other generation worse off. It is closely related to the notion of "golden rule of saving". In relation to markets, in industrial economics, a common argument is that business concentrations or monopolies may be able to promote dynamic efficiency.

In economics, dynamic efficiency is achieved when an economy invests less than the return to capital; conversely, dynamic inefficiency exists when an economy invests more than the return to capital. In dynamic efficiency, it is impossible to make one generation better off without making any other generation worse off. It is closely related to the notion of "golden rule of saving". In relation to markets, in industrial economics, a common argument is that business concentrations or monopolies may be able to promote dynamic efficiency. ==In other models== The Ramsey-Cass-Koopmans model does not have dynamic efficiency problems because agents discount the future at some rate β which is less than 1, and their savings rate is endogenous. The Diamond growth model is not necessarily dynamically efficient because of the overlapping generation setup. In a competitive equilibrium, the growth rate may exceed the interest rate, which entails dynamic inefficiency. This is because agents are finitely lived. However, competitive allocations are dynamically efficient if one augments the Diamond model with land as an additional factor of production. ==References==

Text derived from https://en.wikipedia.org/w/index.php?oldid=1197505911 under CC BY-SA 4.0; modifications have been made.