Endogenous Growth, Backstop Technology Adoption, and Optimal Jumps

Abstract

This paper analyzes a two-phase endogenous growth model in which the adoption of a backstop technology (e.g., solar) yields a sustained supply of essential energy inputs previously obtained from exhaustible resources (e.g., oil). Growth is knowledge-driven and the optimal timing of technology switching is determined by welfare maximization. The optimal path exhibits discrete jumps in endogenous variables: technology switching implies sudden reductions in consumption and output, an increase in the growth rate, and instantaneous adjustments in saving rates. Due to the positive growth effect, it is optimal to implement the new technology when its current consumption benefits are substantially lower than those generated by old technologies.

Markovian strategies for piecewise deterministic differential games with continuous and impulse controls

“…Boucekkine et al [5] study a two-stage optimal control problem for technology adoption that involves obsolescence and learning costs. Following this direction, Valente [23] studies the switching from exhaustible resources to renewable resources. Saglam [20] extends the results to a multi-stage problem.…”

The Road Not Taken: What Is the “Appropriate” Path to Development When Growth Is Unbalanced?

“…This is strictly a comparison of growth paths. For interesting works on shifts from one path to another see Yuki (2008) and Valente (2011). 23. We wish to establish plausible initial conditions for our hypothetical economy.…”