Optimal regime switching and threshold effects

Raouf Boucekkine (), Aude Pommeret () and Fabien Prieur

Journal of Economic Dynamics and Control, 2013, vol. 37, issue 12, 2979-2997

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.

Keywords: Multi-stage optimal control; Threshold effects; Irreversibility; Non-renewable resources; Backstop technology (search for similar items in EconPapers)
JEL-codes: C61 O33 Q30 Q53 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (47)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:37:y:2013:i:12:p:2979-2997

DOI: 10.1016/j.jedc.2013.08.008

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