Scandinavian Working Papers in Economics
Working Papers in Economics,
University of Gothenburg, Department of Economics
No 843: A Dual Approach to the Derivation of Feedback Demand Functions for Capital-Accumulating Agents
Kristian Bolin () and Mikael R Caputo ()
Additional contact information
Kristian Bolin: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: P.O. Box 640, SE 40530 GÖTEBORG, Sweden
Mikael R Caputo: Dept. of Economics, Univ. of Central Florida
Abstract: An optimal control model of a consumer is developed that accounts for the consumption of many goods and services, the accumulation of wealth, a state variable that affects instantaneous preferences and wealth accumulation, and contains several canonical models as special cases. Formulas are provided for the feedback consumption functions in terms of certain partial derivatives of a consumer’s lifetime indirect utility function, thereby obviating the need to solve the necessary conditions of Pontryagin or the Hamilton-Jacobi-Bellman equation. The intrinsic qualitative properties of the optimal control model in differential form are derived, and an example of how to implement the results for econometric purposes is provided as well.
Keywords: capital stock; feedback solutions; HJB equation; optimal control
Language: English
30 pages, May 2024
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