Optimal regime switching and threshold effects
AbstractWe consider a general control problem with two types of optimal regime switch. The first one concerns technological and/or institutional regimes indexed by a finite number of discrete parameter values, and the second features regimes relying on given threshold values for given state variables. We propose a general optimal control framework allowing to derive the first-order optimality conditions and in particular to characterize the geometry of the shadow prices at optimal switching times (if any). We apply this new optimal control material to address the problem of the optimal management of natural resources under ecological irreversibility, and with the possibility to switch to a backstop technology.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Dynamics and Control.
Volume (Year): 37 (2013)
Issue (Month): 12 ()
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Web page: http://www.elsevier.com/locate/jedc
Multi-stage optimal control; Threshold effects; Irreversibility; Non-renewable resources; Backstop technology;
Find related papers by JEL classification:
- Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General
- Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
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