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- Title
An Asymptotic Theory of Growth Under Uncertainty.
- Authors
Merton, Robert C.
- Abstract
The basic model used in this paper is a one-sector neoclassical growth model of the Solow-type where the dynamics of the capital-labour ratio can be described by a diffusiontype stochastic process. The particular source of uncertainty chosen is the population size although the analysis would be equally applicable to technological or other sources of uncertainties. The first part of the paper analyses the stochastic processes and asymptotic distributions for various economic variables, for an exogeneously given savings function, and deduces a number of first-moment relationships which will obtain in the steady-state. In addition, the special case of a Cobb-Douglas production function with a constant savings function is examined in detail and the steady-state distributions for the capital-labour ratio, interest rate, etc., are derived. The second part investigates the stochastic Ramsey problem and a correspondence between this problem and an auxiliary problem involving the steady-state distribution only is derived which generalizes the notion of minimizing divergence from bliss to the stochastic case.
- Subjects
ECONOMETRIC models; ECONOMIC development; ECONOMIC policy; UNCERTAINTY; CAPITAL; ECONOMICS; BUSINESS cycles; LABOR; DEVELOPMENT economics; STOCHASTIC processes; ECONOMIC activity
- Publication
Review of Economic Studies, 1975, Vol 42, Issue 3, p375
- ISSN
0034-6527
- Publication type
Article
- DOI
10.2307/2296851