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Undiscounted optimal growth in a Leontief two-sector model with circulating capital: The case of a capital-intensive consumption good

  • Fujio, Minako
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    This essay presents a complete characterization of undiscounted optimal policy in a Leontief two-sector growth model. We work with the precise technological specification used in Nishimura and Yano [Nishimura, K., Yano, M., 1995. Non-linear dynamics and chaos in optimal growth: an example. Econometrica 63, 981-1001; Nishimura, K., Yano, M., 1996. Chaotic solutions in dynamic linear programming. Chaos Solitons & Fractals 7, 1941-1953; Nishimura, K., Yano, M., 2000. Non-linear dynamics and chaos in optimal growth: a constructive exposition. In: Majumdar, M., Mitra, T. (Eds.), Optimization and Chaos. Springer-Verlag, Berlin, pp. 258-295] and employ a geometric method developed by Khan and Mitra [Khan, M.A., Mitra. T., in press. Optimal growth in a two-sector model without discounting: a geometric investigation. Japanese Economic Review]. Our analysis uncovers rich transition dynamics. Monotonic convergence emerges only under a non-negligible set of parameters with two special features; impossibility of full utilization of factors and convergence in a finite number of periods. Moving beyond this special case, full utilization is not always optimal even if it is feasible. Furthermore, with 'large enough' capital stock the optimal policy becomes a constant.

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    Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

    Volume (Year): 66 (2008)
    Issue (Month): 2 (May)
    Pages: 420-436

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    Handle: RePEc:eee:jeborg:v:66:y:2008:i:2:p:420-436
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    1. Ronald W. Jones, 1965. "The Structure of Simple General Equilibrium Models," Journal of Political Economy, University of Chicago Press, vol. 73, pages 557.
    2. McKenzie, Lionel W., 1983. "Turnpike theory, discounted utility, and the von Neumann facet," Journal of Economic Theory, Elsevier, vol. 30(2), pages 330-352, August.
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