On the Transition from Instantaneous to Time-Lagged Capital Accumulation: The Case of Leontief-Type Production Functions
23 Pages Posted: 18 Jan 2005 Last revised: 30 Jul 2008
Date Written: May 2005
We formulate an optimal control capital accumulation model with a Leontief-type production function and an exogenously given time-lag between investment and the accumulation of the capital stock, to analyze the qualitative and quantitative influence of time-lags on the system dynamics. As known from the time-to-build literature, optimal investment paths for positive and finite time-lags are in general cyclical, in contrast to the monotonic optimal paths for instantaneous capital accumulation. We show that the transition between instantaneous and time-lagged capital accumulation is continuous, in the sense that the greater is the time-lag between investment and capital accumulation, the more likely and more pronounced becomes cyclical behavior of the optimal paths.
Keywords: Cyclical optimal paths, numerical optimization, time-lagged optimal control, time-to-build
JEL Classification: E32, C63, C61
Suggested Citation: Suggested Citation