A Dual Approach to the Derivation of Feedback Demand Functions for Capital-Accumulating Agents

Kristian Bolin and Mikael R Caputo ()
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Mikael R Caputo: Dept. of Economics, Univ. of Central Florida

No 843, Working Papers in Economics from University of Gothenburg, Department of Economics

Abstract: An optimal control model of a consumer is developed that accounts for the consumption of many goods and services, the accumulation of wealth, a state variable that affects instantaneous preferences and wealth accumulation, and contains several canonical models as special cases. Formulas are provided for the feedback consumption functions in terms of certain partial derivatives of a consumer’s lifetime indirect utility function, thereby obviating the need to solve the necessary conditions of Pontryagin or the Hamilton-Jacobi-Bellman equation. The intrinsic qualitative properties of the optimal control model in differential form are derived, and an example of how to implement the results for econometric purposes is provided as well.

Keywords: capital stock; feedback solutions; HJB equation; optimal control (search for similar items in EconPapers)
JEL-codes: D15 I12 I18 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2024-05
New Economics Papers: this item is included in nep-upt
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