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Optimal Investments with Increasing Returns to Scale

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  • Barucci, Emilio

Abstract

The author analyzes the firm optimal investment policy, assuming a pure increasing-returns-to-scale technology and adjustment costs. The existence of an optimal plan is proved by applying a new set of necessary and sufficient conditions for optimality. The analysis is carried out in a linear-quadratic framework that enables one to study a general nonlinear problem in a neighborhood of the long-run equilibrium. The investment policy shows a reverse accelerator effect. In a general setting, he proves that the saddle-point characterization is a sufficient condition for a stationary competitive equilibrium to be a finitely optimal trajectory. Copyright 1998 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Barucci, Emilio, 1998. "Optimal Investments with Increasing Returns to Scale," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 789-808, August.
  • Handle: RePEc:ier:iecrev:v:39:y:1998:i:3:p:789-808
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    1. repec:spr:joptap:v:123:y:2004:i:1:d:10.1023_b:jota.0000043991.06755.af is not listed on IDEAS
    2. Hartl, Richard F. & Kort, Peter M., 2003. "History dependence without unstable steady state: a non-differentiable framework," Journal of Mathematical Economics, Elsevier, vol. 39(8), pages 891-900, November.
    3. Haunschmied, Josef L. & Kort, Peter M. & Hartl, Richard F. & Feichtinger, Gustav, 2003. "A DNS-curve in a two-state capital accumulation model: a numerical analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 27(4), pages 701-716, February.
    4. Kort, Peter M. & Wrzaczek, Stefan, 2015. "Optimal firm growth under the threat of entry," European Journal of Operational Research, Elsevier, vol. 246(1), pages 281-292.
    5. Feichtinger, G. & Hartl, R.F. & Kort, P.M. & Veliov, V., 2001. "Dynamic Investment Behavior Taking into Account Ageing of the Capital Good," Discussion Paper 2001-13, Tilburg University, Center for Economic Research.
    6. Grames, Johanna & Grass, Dieter & Kort, Peter M. & F├╝rnkranz-Prskawetz, Alexia, 2017. "Optimal investment and location decisions of a firm in a flood risk area using Impulse Control Theory," ECON WPS - Vienna University of Technology Working Papers in Economic Theory and Policy 01/2017, Vienna University of Technology, Institute for Mathematical Methods in Economics, Research Group Economics (ECON).
    7. Caulkins, Jonathan P. & Feichtinger, Gustav & Grass, Dieter & Hartl, Richard F. & Kort, Peter M. & Seidl, Andrea, 2015. "Skiba points in free end-time problems," Journal of Economic Dynamics and Control, Elsevier, vol. 51(C), pages 404-419.
    8. Feichtinger, Gustav & Hartl, Richard F. & Kort, Peter M. & Veliov, Vladimir M., 2006. "Capital accumulation under technological progress and learning: A vintage capital approach," European Journal of Operational Research, Elsevier, vol. 172(1), pages 293-310, July.
    9. Caulkins, Jonathan P. & Feichtinger, Gustav & Grass, Dieter & Hartl, Richard F. & Kort, Peter M., 2011. "Two state capital accumulation with heterogenous products: Disruptive vs. non-disruptive goods," Journal of Economic Dynamics and Control, Elsevier, vol. 35(4), pages 462-478, April.

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