In the last chapter we have argued that working with an infinite horizon framework is one step towards a model in which time is not sterilized or purely added as further characteristic of goods, but in which time plays its own peculiar and essential role. But although switching from a finite to an infinite horizon model seems to be only a short step, the analysis becomes much more complicated. Therefore, before proceeding to the fully general analysis of infinite time horizon economies, for didactic reasons some kind of simplified approach appears necessary.
KeywordsInterest Rate Capital Stock Golden Rule Efficient Program Feasible Program
Unable to display preview. Download preview PDF.
- 1.Note, however, that ecological systems do not behave like steady states; moreover, they never can, because of thermodynamic laws. Therefore, steady states are only an approxi mation of the processes ongoing in nature (for details, see FABER, NIEMES and STEPHAN 1987). It is interesting to note, that the same circle of people who rediscovered the steady state growth theory, because of environmental concerns, were the ones who dismissed it a few years ago.Google Scholar
- 2.One might ask, what do technology sets look like which fulfill Assumption 6.2. One possible answer is: The technology set does not change over time, hence Gt = G1 for all t, and forms a convex cone. A simple example is provided in Section 6.2.Google Scholar
- 5.In fact, it will be shown in Section 6.3 that steady states can be associated with propor tional prices.Google Scholar
- 6.These considerations remember for the Lemma 5.1 as established in Chapter 5. If the set of all feasible intertemporal consumption bundles is bounded, then a golden rule can exist.Google Scholar
- 7.For an explanation of the capital value property see Section 6.3.2 and Chapter 9.Google Scholar
- 8.BERNHOLZ and FABER (1978) used a simple two-sector finite-horizon model. FABER and STEPHAN (1986) have used the GALE and ROCKWELL (1975) approach.Google Scholar
- 9.As usual in mathematics, c » 0 means c is strictly positive, i.e. cn > 0 for all n = 1,...,N. c > 0 means c is greater than zero with c = 0 excluded (see Footnote 3, Chapter 2).Google Scholar