A robust consumption model when the intensity of technological progress is ambiguous

In this paper, we examine a consumption policy for economic growth when predictions of labor-augmenting technological progress are ambiguous. We focus especially on ambiguity related to the intensity of technological progress. We assume a production economy that consists of a representative household and firm. First, we estimate the long-term growth rate explicitly. Next, we formulate the central planner’s problem by employing a Hansen–Sargent-type robust control approach. We then verify the viscosity property of the Hamilton–Jacobi–Bellman–Isaacs equation associated with the central planner’s problem. Then, we numerically solve the Hamilton–Jacobi–Bellman–Isaacs equation to derive the optimal consumption policy. Furthermore, we numerically solve the nonlinear partial differential equation and obtain the optimal consumption and distortion.