No label defined (Q4253554)

Economy is a triplet \((\Omega, v, \rho)\), \(\Omega\subset \mathbb{R}_+\times \mathbb{R}_+\) (technology set), \(v:\Omega\to \mathbb{R}_+\) (reduced-form utility function), \(\rho\in (0,1)\) (discount factor of future utilities). \(\Omega\) is closed, convex, contains \((\mathbb{R}_+,0)\), and for some \(\bar{x}\) contains the triangle under the diagonal \(y=x\) for \(x<\bar{x}\) and does not contain the diagonal for \(x>\bar{x}\). \(v\) is continuous and non decerasing when \((x,y)\in \Omega\) goes south-east. A feasible path is a sequence \((k_n)\) with \((k_n,k_{n+1})\in \Omega\). The optimal growth is a solution of \(\max \sum_t \rho^t v(k_t,k_{t+1})\) (over feasible paths). A policy is a function \(h\) from \([0,\bar{x}]\) to itself such that for any \(k=k_0\in [0,\bar{x}]\) its trajectory under \(h\) is an optimal path. The following theorem is proved: For any \(\rho<1\) there exists an economy and a policy function in its interior which is topologically chaotic (in the Yorke-Li sense i.e. some iterate of \(h\) contains periodic orbits of any period and a so called scrambled set). The construction given is in fact a one-parameter family of the economies.