AN EMPIRICAL DETERMINATION OF A DYNAMIC UTILITY FUNCTION.

An intertemporal optimization condition follows from any model of optimal growth. Such an equation usually contains two parameters which cannot be directly observed, the discount rate of future utility and the elasticity of marginal utility. These two parameters can be empirically estimated if they remain constant over time and if the assumed criterion function is maximized in the real economic system. In this paper, a method of estimating these two parameters is presented and it is applied to the U.S., Japan, and Canada. Although the results are not conclusive, in view of the assumptions involved, they tend to confirm the hypothesis that they are fairly stable over time, at least during a sociologically well-defined short period. The analysis in this paper, although heavily constrained by the shortage of data on capital stocks, has shown that the elasticity of marginal utility and the discount rate of future utility are fairly stable over time in normal years, particularly for a short period in which the society as a whole remains essentially unchanged.