Undiscounted optimal growth with consumable capital: Application to water

Sherif Khalifa and Ihsan Kaler Hurcan
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Ihsan Kaler Hurcan: Mitsui & Co. Europe

Journal of Applied Economics, 2011, vol. 14, 145-166

Abstract: This paper utilizes the geometric techniques developed in Khan and Mitra (2005, 2007) to analyze the optimal intertemporal allocation of water resources in a dynamic setup without discounting. The framework features two sectors: the first uses labor to purify water, while the second uses labor and purified water for irrigation to produce an agricultural consumption good. Purified water can also be used as potable water for drinking purposes. The planner allocates the available factors of production between the two sectors every period, and determines the optimal amounts of purified water, potable water, and irrigation water. The geometry characterizes the optimal path depending on whether the irrigation sector is more labor intensive than the purification sector. When the irrigation sector is labor intensive, the optimal path is a non converging cycle around the golden rule stock of purified water, while if the purification sector is labor intensive, there is a damped cyclical convergence to the go lden rule stock.

Keywords: water resources; overtaking criterion; golden rule stock (search for similar items in EconPapers)
JEL-codes: C61 D90 Q25 (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:cem:jaecon:v:14:y:2011:n:1:p:145-166

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