Optimal consumption in the stochastic Ramsey problem without boundedness constraints

DOI10.1137/18M1188410MaRDI QIDQ4627477zbMATH OpenOpenAlexWikidataFDO

Authors Yu-Jui Huang, Saeed Khalili

Publication date 11 March 2019

Published in SIAM Journal on Control and Optimization (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1805.07532

zbMATH Keywords

optimal consumptionstochastic Ramsey problemviscosity solutionspathwise uniquenessFeller's test for explosion

Mathematics Subject Classification ID

Viscosity solutions to Hamilton-Jacobi equations in optimal control and differential games (49L25) Economic growth models (91B62) Optimal stochastic control (93E20)

Abstract: This paper investigates optimal consumption in the stochastic Ramsey problem with the Cobb-Douglas production function. Contrary to prior studies, we allow for general consumption processes, without any a priori boundedness constraint. A non-standard stochastic differential equation, with neither Lipschitz continuity nor linear growth, specifies the dynamics of the controlled state process. A mixture of probabilistic arguments are used to construct the state process, and establish its non-explosiveness and strict positivity. This leads to the optimality of a feedback consumption process, defined in terms of the value function and the state process. Based on additional viscosity solutions techniques, we characterize the value function as the unique classical solution to a nonlinear elliptic equation, among an appropriate class of functions. This characterization involves a condition on the limiting behavior of the value function at the origin, which is the key to dealing with unbounded consumptions. Finally, relaxing the boundedness constraint is shown to increase, strictly, the expected utility at all wealth levels.

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Cited in

(7)

• Unrestricted consumption under a deterministic wealth and an Ornstein-Uhlenbeck process as a discount rate
• Optimal consumption of the stochastic Ramsey problem for non-Lipschitz diffusion
• Optimal economic growth models with nonlinear utility functions
• Optimal consumption in a stochastic Ramsey model with Cobb-Douglas production function
• Bernoulli substitution in the Ramsey model: optimal trajectories under control constraints
• A robust consumption model when the intensity of technological progress is ambiguous
• On an optimal consumption problem for \(p\)-integrable consumption plans

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