Skiba points for small discount rates

Florian Wagener

No 04-09, CeNDEF Working Papers from Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance

Abstract: The present article uses perturbation techniques to approximate the value function of an economic minimisation problem for small values of the discount rate. This can be used to obtain the approximate location of Skiba states (or indifference thresholds) in the problem; these are states for which there are two distinct optimal state trajectories, converging to different optimal steady states. It is shown that the sets of indifference thresholds are locally smooth manifolds. For a simple example, all relevant quantities are computed explicitely. Moreover, the approximation can be used to obtain parameter-dependent approximatons to indifference manifolds.

Date: 2004
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Skiba Points for Small Discount Rates (2006)
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