Optimal growth in a two-sector economy facing an expected random shock

Aseev SM, Besov KO, Ollus S-E, & Palokangas T (2012). Optimal growth in a two-sector economy facing an expected random shock. Proceedings of the Steklov Institute of Mathematics: 4-34. DOI:10.1134/S0081543812020022.

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Abstract

We develop an optimal growth model of an open economy that uses both an old ("dirty" or "polluting") technology and a new ("clean") technology simultaneously. A planner costs in the dirty sector. Assuming that the probability of an exogenous environmental shock is distributed according to the exponential law, we use Pontryagin's maximum principle to find the optimal investment and consumption policies for the economy.

Item Type: Article
Uncontrolled Keywords: Dynamic optimization; Optimal control; Pontryagin's maximum principle; Endogenous growth; Climate change; Random shock; Government policy; Technological development
Research Programs: Advanced Systems Analysis (ASA)
Bibliographic Reference: Proceedings of the Steklov Institute of Mathematics; 276(Suppl.1):4-34 (April 2012)
Depositing User: IIASA Import
Date Deposited: 15 Jan 2016 08:46
Last Modified: 24 Feb 2016 17:05
URI: http://pure.iiasa.ac.at/9973

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