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The Duality of a Dynamic Model of Equilibrium and an Optimal Growth Model: The Heterogeneous Capital Goods Case

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  • Robert A. Becker

Abstract

The equivalence between optimal growth solutions and solutions of decentralized models of intertemporal allocation is explored in a one-consumer, heterogeneous capital goods framework. The decentralized economy follows a perfect foresight path. The main result is that the decentralized economy will impose on itself a transversality condition. This yields the interpretation of equilibrium prices as prices consistent with a certainty version of the efficient markets hypothesis. The results rest on the recent contribution by Benveniste and Scheinkman providing sufficient conditions for infinite horizon concave programs to exhibit capital value transversality as a necessary condition for optimality.

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  • Robert A. Becker, 1981. "The Duality of a Dynamic Model of Equilibrium and an Optimal Growth Model: The Heterogeneous Capital Goods Case," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 96(2), pages 271-300.
    • Handle: RePEc:oup:qjecon:v:96:y:1981:i:2:p:271-300.
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    File URL: http://hdl.handle.net/10.2307/1882391
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    Cited by:

    1. Benavie, Arthur & Grinols, Earl & Turnovsky, Stephen J., 1996. "Adjustment costs and investment in a stochastic endogenous growth model," Journal of Monetary Economics, Elsevier, vol. 38(1), pages 77-100, August.
    2. Aubhik Khan & B. Ravikumar, 2002. "Costly Technology Adoption and Capital Accumulation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(2), pages 489-502, April.
    3. Greiner, Alfred, 1996. "Endogenous growth cycles--Arrow's learning by doing reconsidered," Journal of Macroeconomics, Elsevier, vol. 18(4), pages 587-604.
    4. Michele Boldrin, 1988. "Paths of Optimal Accumulation in Two-Sector Models," UCLA Economics Working Papers 464, UCLA Department of Economics.

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