Endogenous Phase Switch in Baumol’s Service Paradox Model

Hiroaki Sasaki

Discussion papers from Graduate School of Economics Project Center, Kyoto University

Abstract: The optimal dividend problem by De Finetti (1957) has been recently generalized to the spectrally negative Lévy model where the implementation of optimal strategies draws upon the computation of scale functions and their derivatives. This paper proposes a phase-type fitting approximation of the optimal strategy. We consider spectrally negative Lévy processes with phase-type jumps as well as meromorphic Lévy processes (Kuznetsov et al., 2010a), and use their scale functions to approximate the scale function for a general spectrally negative Lévy process. We obtain analytically the convergence results and illustrate numerically the effectiveness of the approximation methods using examples with the spectrally negative Lévy process with i.i.d. Weibull-distributed jumps, the β-family and CGMY process.

Keywords: service paradox; structural change; endogenous productivity growth (search for similar items in EconPapers)
JEL-codes: J21 J24 O11 O14 O30 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2010-12
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Related works:
Journal Article: Endogenous phase switch in Baumol's service paradox model (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:kue:dpaper:e-10-010

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