Accumulation and compensation turnpikes in a Leontief model (*)

Michael Kaganovich ()

Economic Theory, 1996, vol. 7, issue 3, 463-490

Abstract: The paper considers a model of an economy with after-effects: any production activity generates some subsequent expenses, like compensation of residual damages. Internalizing the after-effects in production costs at the time they are generated proves to substantially change the shape of long-term programs. It results from an interaction of two components corresponding to the conflicting goals: the fastest growth of production, and the most rapid decrease of residual damages. Each component has its own turnpike, so that the model has two dynamic equilibria. Respectively, shadow prices are a combination of two components: "accumulation prices" declining over time, and "compensation prices" that are growing. In some cases this may result in negative market interest rates.

Date: 1996
Note: Received: December 17, 1992; revised version March 2, 1995
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Journal Article: Accumulation and Compensation Turnpikes in a Leontief Model (1996)
Working Paper: Accumulation and Compensation Turnpikes in a Liontief Model (1992)
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