Optimal regime switching and threshold effects
(2013) Journal of Economic Dynamics and Control — Vol. 37, n° 12, p. 2979-2997 (2013)
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- Authors
- Abstract
- We consider a general control problem with two types of optimal regime switch. The first one concerns technological and/or institutional regimes indexed by a finite number of discrete parameter values, and the second features regimes relying on given threshold values for given state variables. We propose a general optimal control framework allowing to derive the first-order optimality conditions and in particular to characterize the geometry of the shadow prices at optimal switching times (if any). We apply this new optimal control material to address the problem of the optimal management of natural resources under ecological irreversibility, and with the possibility to switch to a backstop technology.
- Affiliations
Aix-Marseille University GREQAM Université de Lausanne Départment d'économétrie et d'économie politique Université de Montpellier I LAMETA
Citations
Boucekkine, R., Pommeret, A., & Prieur, F. (2013). Optimal regime switching and threshold effects. Journal of Economic Dynamics and Control, 37(12), 2979-2997. https://doi.org/10.1016/j.jedc.2013.08.008 (Original work published 2013)