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Undiscounted optimal growth with consumable capital and labor-intensive consumption goods

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  • Khalifa, Sherif
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    Abstract

    This paper presents a complete characterization of the optimal policy in a two sector undiscounted growth model. The model is an extension of the Leontief two sector model, which analyzes the optimal allocation of capital and labor to a consumption good sector and an investment good sector. The paper extends this framework to include consumable capital. Thus, the planner has preferences over the consumption good and the consumable capital. Future welfare levels are treated equally as current ones. Geometric techniques are applied to characterize the optimal policy if the consumption good is labor-intensive. The results suggest that if the initial capital stock is above a threshold level, that depends upon the consumption of capital, every optimal program is monotonic, converges to the golden rule stock in a finite number of periods, and undergoes either unemployment or excess capacity of capital.

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    File URL: http://www.sciencedirect.com/science/article/pii/S026499931100054X
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    Bibliographic Info

    Article provided by Elsevier in its journal Economic Modelling.

    Volume (Year): 28 (2011)
    Issue (Month): 4 (July)
    Pages: 1673-1682

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    Handle: RePEc:eee:ecmode:v:28:y:2011:i:4:p:1673-1682

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    Web page: http://www.elsevier.com/locate/inca/30411

    Related research

    Keywords: Optimal program Overtaking criterion Golden rule stock Value-loss lines;

    References

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    1. Minako Fujio, 2005. "The Leontief Two-sector Model and Undiscounted Optimal Growth with Irreversible Investment: The Case of Labor-intensive Consumption Goods," Journal of Economics, Springer, vol. 86(2), pages 145-159, November.
    2. Fujio, Minako, 2008. "Undiscounted optimal growth in a Leontief two-sector model with circulating capital: The case of a capital-intensive consumption good," Journal of Economic Behavior & Organization, Elsevier, vol. 66(2), pages 420-436, May.
    3. M. Ali Khan & Tapan Mitra, 2007. "Optimal Growth In A Two-Sector Rss Model Without Discounting: A Geometric Investigation," The Japanese Economic Review, Japanese Economic Association, vol. 58(2), pages 191-225.
    4. Khan, M. Ali & Mitra, Tapan, 2004. "On Choice of Technique in the Robinson-Solow-Srinivasan Model," Working Papers 04-13, Cornell University, Center for Analytic Economics.
    5. Nishimura, Kazuo & Yano, Makoto, 1995. "Nonlinear Dynamics and Chaos in Optimal Growth: An Example," Econometrica, Econometric Society, vol. 63(4), pages 981-1001, July.
    6. Minako Fujio, 2009. "Optimal Transition Dynamics In The Leontief Two-Sector Growth Model With Durable Capital: The Case Of Capital Intensive Consumption Goods," The Japanese Economic Review, Japanese Economic Association, vol. 60(4), pages 490-511.
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    Cited by:
    1. Khalifa, Sherif, 2013. "Undiscounted optimal growth with consumable capital and capital-intensive consumption goods," Mathematical Social Sciences, Elsevier, vol. 65(2), pages 118-135.

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