Business Intelligence

Optimal Growth And The Golden Rule In A Two-Sector Model Of Capital Accumulation

Download Now Free registration required

Executive Summary

The authors contribute to the literature on optimal growth in two-sector models by solving a Ramsey problem with a concave utility function. The unique possible steady-state is independent of initial conditions and of the instantaneous utility function, but not of the discount rate, and is characterized by a wage-rental ratio depending solely on the technology of the capital sector. For an initially low-capital economy, they show that the wage-rental ratio increasingly converges to its balanced value during transition. If the consumption sector is relatively capital-intensive, the relative price of capital increases during transition. If the investment sector is relatively more capital-intensive, it decreases.

  • Format: PDF
  • Size: 843.8 KB