Optimal consumption in the stochastic Ramsey problem without boundedness constraints

DOI10.1137/18M1188410zbMATH Open1419.91497arXiv1805.07532OpenAlexW2963703313WikidataQ128284699 ScholiaQ128284699MaRDI QIDQ4627477FDOQ4627477

Authors: Yu-Jui Huang, Saeed Khalili 

Publication date: 11 March 2019

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

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.

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

Recommendations

• Optimal consumption of the stochastic Ramsey problem for non-Lipschitz diffusion
• Optimal consumption in a stochastic Ramsey model with Cobb-Douglas production function
• Optimal Consumption in a Growth Model with the Cobb–Douglas Production Function
• Optimal consumption of the finite time horizon Ramsey problem
• Consumption-Investment Models with Constraints

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)

Cites Work

• Title not available (Why is that?)
• Continuous-time stochastic control and optimization with financial applications
• Controlled Markov processes and viscosity solutions
• Optimal consumption of the stochastic Ramsey problem for non-Lipschitz diffusion
• Stochastic control and mathematical modeling. Applications in economics.
• Optimal Consumption in a Growth Model with the Cobb–Douglas Production Function
• Title not available (Why is that?)
• An Asymptotic Theory of Growth Under Uncertainty
• On a comparison theorem for solutions of stochastic differential equations and its applications
• Controlled diffusion processes. Translated by A. B. Aries
• On the multidimensional controller-and-stopper games
• On the pathwise uniqueness of solutions of one-dimensional stochastic differential equations
• Optimal consumption models in economic growth

Cited In (7)

• 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
• Unrestricted consumption under a deterministic wealth and an Ornstein-Uhlenbeck process as a discount rate

This page was built for publication: Optimal consumption in the stochastic Ramsey problem without boundedness constraints

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q4627477)