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Accumulation and Compensation Turnpikes in a Liontief Model

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  • Kaganovich, M.

Abstract

The paper considers a model of an economy with after effects: any production activity generates some subsequent expenses, like compensation of residual damages. Internalizing the after effects in production costs at the time they are generated proves to substantially change the shape of long-term programs. It results from an interaction of two components corresponding to the conflicting goals: the fastest growth of production and the most rapid decrease of residual damages. Each component has its own turnpike so that the model has two dynamic equilibria. Respectively, shadow prices are a combination of two components: "accumulation prices" declining over time, and "compensation prices" that are growing. In some cases this may result in negative market interest rates.
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Suggested Citation

  • Kaganovich, M., 1992. "Accumulation and Compensation Turnpikes in a Liontief Model," Papers 92-014, Indiana - Center for Econometric Model Research.
  • Handle: RePEc:fth:indian:92-014
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    Keywords

    production ; economic models;

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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