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Optimal Growth with Increasing Returns to Scale in Expanding Capacity

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  • John Hartwick

Abstract

Accumulated savings generates capacity with increasing returns to scale in a one commodity model of optimal growth with circulating capital or capacity. Output is proportional to available capacity. Increasing returns makes a spacing of times for investment optimal in a growing economy. We derive: 1) an optimal investment timing rule; 2) an optimal savings rule, and investigate optimal programs in a model with iso-elastic functional forms. Closed form solutions are computed. The is unstable around the balanced or proportional growth path.

Suggested Citation

  • John Hartwick, 1977. "Optimal Growth with Increasing Returns to Scale in Expanding Capacity," Working Paper 260, Economics Department, Queen's University.
  • Handle: RePEc:qed:wpaper:260
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