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 relation to markets, in industrial economics, a common argument is that business concentrations or monopolies may be able to promote dynamic efficiency.
[3] Abel, Mankiw, Summers, and Zeckhauser (1989)[1] develop a criterion for addressing dynamic efficiency and apply this model to the United States and other OECD countries, suggesting that these countries are indeed dynamically efficient.
The Diamond growth model is not necessarily dynamically efficient because of the overlapping generation setup.
[5] However, competitive allocations are dynamically efficient if one augments the Diamond model with land as an additional factor of production.