Optimal growth in a two-sector economy facing an expected random shock
Authors: Aseev SM, Besov KO, Ollus S-E, Palokangas T
Publication Year: 2012
Reference: Proceedings of the Steklov Institute of Mathematics, 276(Suppl.1):4-34 (April 2012)
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.
KEYWORDS: Dynamic optimization; Optimal control; Pontryagin's maximum principle; Endogenous growth; Climate change; Random shock; Government policy; Technological development
KEYWORDS: Dynamic optimization; Optimal control; Pontryagin's maximum principle; Endogenous growth; Climate change; Random shock; Government policy; Technological development