Stochastic Growth When Utility Depends on Both Consumption and the Stock Level
AbstractThis paper examines the dynamic behavior of optimal consumption and investment policies in the aggregate stochastic growth model when utility depends on both consumption and the stock level. Such models arise in the study of renewable resources, monetary growth, and growth with public capital. The paper shows that there is a global convergence of optimal policies to a unique stationary distribution if (a) there is sufficient complementarity in the model, or (b) if there is sufficient randomness in production. Two examples illustrate the possibility of multiple stationary distributions. In one, multiple stochastic steady states exist for a generic class of production and utility functions.
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Bibliographic InfoArticle provided by Springer in its journal Economic Theory.
Volume (Year): 4 (1994)
Issue (Month): 5 (August)
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Web page: http://link.springer.de/link/service/journals/00199/index.htm
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- Olson, Lars J. & Roy, Santanu, 2005. "Theory of Stochastic Optimal Economic Growth," Working Papers 28601, University of Maryland, Department of Agricultural and Resource Economics.
- Lars Olson & Santanu Roy, 2008. "Controlling a biological invasion: a non-classical dynamic economic model," Economic Theory, Springer, vol. 36(3), pages 453-469, September.
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