Optimal Investments with Increasing Returns to Scale

Emilio Barucci

International Economic Review, 1998, vol. 39, issue 3, 789-808

Abstract: The author analyzes the firm optimal investment policy, assuming a pure increasing-returns-to-scale technology and adjustment costs. The existence of an optimal plan is proved by applying a new set of necessary and sufficient conditions for optimality. The analysis is carried out in a linear-quadratic framework that enables one to study a general nonlinear problem in a neighborhood of the long-run equilibrium. The investment policy shows a reverse accelerator effect. In a general setting, he proves that the saddle-point characterization is a sufficient condition for a stationary competitive equilibrium to be a finitely optimal trajectory. Copyright 1998 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1998
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