Econometrica: Nov, 1983, Volume 51, Issue 6

Stationary Optimal Policies with Discounting in a Stochastic Activity Analysis Model

https://doi.org/0012-9682(198311)51:6<1821:SOPWDI>2.0.CO;2-D
p. 1821-1838

Mukul Majumdar, Roy Radner

We consider optimal capital accumulation in a nonlinear activity analysis model in which production and primary resource supplies are affected by a stationary stochastic process of exogenous shocks; the optimality criterion is the sum of discounted expected future social utilities. Under various "neoclassical" conditions on technology and preferences, (i) there exists an optimal policy of investment and consumption expressible as a continuous time-invariant function of the capital stocks and the history of stochastic shocks, and (ii) there is a stationary stochastic process of capital stocks that is consistent with the optimal policy.