Optimal Steady States And The Effects Of Discounting
AbstractA simple expression for finding and characterizing the optimal steady state of a general dynamic optimization problem is derived. This expression is easy to interpret and easy to apply for various purposes as, for example, to analytically investigate the effect of the discount rate upon optimal steady state stock levels. It is shown that an increase in the discount rate may result in higher optimal stock levels even in the one-dimensional (single species) case in nonlinear models. An important result is that if demand is inelastic at the optimal steady state, a higher discount rate will unequivocally imply higher standing stock(s). Increasing marginal cost of harvest will further strengthen this result. In the multidimensional case it is demonstrated that an increased discount rate may result in higher optimal stock levels for all stocks included in the model.
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Bibliographic InfoArticle provided by Marine Resources Foundation in its journal Marine Resource Economics.
Volume (Year): 12 (1997)
Issue (Month): 2 ()
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Web page: http://www.uri.edu/cels/enre/mre/mre.htm
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