Stochastic growth when utility depends on both consumption and the stock level

Yaw Nyarko, Lars J. Olson

Research output: Contribution to journalArticle

Abstract

This paper examines the dynamic behavior of optimal consumption and investment policies in the aggregate stochastic growth model when utility depends on both consumption and the stock level. Such models arise in the study of renewable resources, monetary growth, and growth with public capital. The paper shows that there is a global convergence of optimal policies to a unique stationary distribution if (a) there is sufficient complementarity in the model, or (b) if there is sufficient randomness in production. Two examples illustrate the possibility of multiple stationary distributions. In one, multiple stochastic steady states exist for a generic class of production and utility functions.

Original languageEnglish (US)
Pages (from-to)791-797
Number of pages7
JournalEconomic Theory
Volume4
Issue number5
DOIs
StatePublished - Sep 1994

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Stationary distribution
Stochastic growth
Public capital
Optimal investment
Utility function
Renewable resources
Global convergence
Optimal policy
Complementarity
Stochastic growth model
Optimal consumption
Randomness
Production function
Investment policy

ASJC Scopus subject areas

  • Economics and Econometrics

Cite this

Stochastic growth when utility depends on both consumption and the stock level. / Nyarko, Yaw; Olson, Lars J.

In: Economic Theory, Vol. 4, No. 5, 09.1994, p. 791-797.

Research output: Contribution to journalArticle

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