Existence of optimal strategies in linear multisector models (Q2505527)

The aim of this paper is to formulate a linear multisector model related to the currently existing economic literature on endogenous growth. The authors provide sufficient and almost necessary conditions for the existence of optimal strategies in the proposed linear multisector models, within for following main assumptions: the time is continuous, consumption is limited to one commodity, the instantaneous utility is of the CES (Constant Elasticity of Substitution) type, and available technology allows a positive growth rate. The proposed model has a production side that is close to the original von Neumann growth model, in which commodities are produced out of each other, and Ramsey-like preferences are present in the sense that the optimal behaviour of a representative agent determines the saving behaviour of the system. The paper concentrates on inter-temporal rather an intra-temporal choices, assuming a simple consumption good. The usual isoelastic utility function is employed to clarify the main differences with the single commodity analysis. Therefore, the preferences of the representative agent are characterized by two parameters: the rate of time discount \(\rho\), and the constant elasticity of substitution (CES) \(\sigma>0\). The authors show the important role of the upper bound of the uniform over time rates of representation of the consumption good \(\Gamma\). In particular, if \(\Gamma>(\Gamma-\rho)/\sigma\), then an optimal strategy exists, whereas if \(\Gamma<(\Gamma-\rho)/\sigma\), then no optimal strategy exists. For the equality case \(\Gamma=(\Gamma-\rho)/\sigma\), an optimal strategy may or may not exist, depending on the values of \(\rho\) and \(\sigma\). The complex study of the limiting cases is just outlined.