The Weitzman Foundation of NNP with Non-constant Interest Rates

Weitzman shows that capital gains should be excluded from NNP. This result is somewhat deceptive since, with his assumption of a constant interest rate, there are no aggregate capital gains, while capital gains in each open economy should be included fully. Here, the implications of Weitzman welfare foundation is explored in the case of non-constant interest rates, a case often encountered in resource models. It is established that the conventional measure of NNP must be adjusted for capital gains and interest rate effects. This result is of importance for the distribution of NNP between resource rich and resource poor countries. Published in: The Scandinavian Journal of Economics 3, 1997