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Optimal Growth and Uncertainty: Learning

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  • Christos Koulovatianos,
  • Leonard J. Mirman
  • Marc Santugini

Abstract

We introduce learning in a Brock-Mirman environment and study the effect of risk generated by the planner’s econometric activity on optimal consumption and investment. Here, learning introduces two sources of risk about future payoffs: structural uncertainty and uncertainty from the anticipation of learning. The latter renders control and learning nonseparable. We present two sets of results in a learning environment. First, conditions under which the introduction of learning increases or decreases optimal consumption are provided. The effect depends on the strengths and directions of the two sources of risk, which may pull in opposite directions. Second, the effects of changes in the mean and riskiness of the distribution of the signal and initial beliefs on optimal consumption are studied.

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Paper provided by University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM) in its series Discussion Papers with number 08/08.

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Handle: RePEc:not:notcfc:08/08

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Cited by:
  1. Christos Koulovatianos, 2011. "A Paradox of Environmental Awareness Campaigns," Levine's Working Paper Archive 786969000000000041, David K. Levine.
  2. Koulovatianos, Christos & Wieland, Volker, 2011. "Asset Pricing under Rational Learning about Rare Disasters," CEPR Discussion Papers 8514, C.E.P.R. Discussion Papers.
  3. Agbo, Maxime, 2014. "Strategic exploitation with learning and heterogeneous beliefs," Journal of Environmental Economics and Management, Elsevier, vol. 67(2), pages 126-140.
  4. Eric Fesselmeyer & Leonard J. Mirman & Marc Santugini, 2013. "Investment in a Growth Model of Non-Excludable Aggregate Capital," Cahiers de recherche 13-01, HEC Montréal, Institut d'économie appliquée.
  5. Santanu Roy & Itzhak Zilcha, 2012. "Stochastic growth with short-run prediction of shocks," Economic Theory, Springer, vol. 51(3), pages 539-580, November.
  6. Wassim DAHER & Leonard J. MIRMAN & Marc Santugini, 2009. "Information in Cournot: Signaling with Incomplete Control," Cahiers de recherche 09-09, HEC Montréal, Institut d'économie appliquée, revised Nov 2011.
  7. Orlando Gomes, 2008. "Local Learning Dynamics," Economics Bulletin, AccessEcon, vol. 3(57), pages 1-15.
  8. repec:ebl:ecbull:v:3:y:2008:i:57:p:1-15 is not listed on IDEAS

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