Quarterly Journal of Economics Vol. 100 No. 2 1985
State Dependence in Optimal Factor Accumulation
Abstract
A general model of optimal factor accumulation over an infinite horizon is presented in which the steady state depends on initial conditions and on the history of the system. In contrast to conventional results, any change in initial conditions or any temporary shock in the convergence process will in general change the optimal steady state. The result is shown to arise, when the discount rate is positive, from standard assumptions made about the technology of converting heterogeneous factors from one type to another. The dynamic optimizing models commonly used in economics are characterized by state or path independence. Steady state equilibria are determined by underlying exogenous parameters, independent of initial conditions and the history of the economy. Though certain phenomena may be well described by this type of analysis, one wonders whether there are other economic phenom-ena where initial conditions of history will indeed matter. In this paper we consider a model of dynamic optimization
- DOI
- 10.2307/1885386
- Volume
- 100
- Issue
- 2
- Pages
- 357
- Sources
- openalex crossref