Undiscounted optimal growth with consumable capital and labor-intensive consumption goods
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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- 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.
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- 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.
- Nishimura, Kazuo & Yano, Makoto, 1995. "Nonlinear Dynamics and Chaos in Optimal Growth: An Example," Econometrica, Econometric Society, vol. 63(4), pages 981-1001, July.
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- Paul A. Samuelson & Robert M. Solow, 1956. "A Complete Capital Model Involving Heterogeneous Capital Goods," The Quarterly Journal of Economics, Oxford University Press, vol. 70(4), pages 537-562.
- Hiroshi Atsumi, 1965. "Neoclassical Growth and the Efficient Program of Capital Accumulation," Review of Economic Studies, Oxford University Press, vol. 32(2), pages 127-136.
- 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.
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