Irreversible capital accumulation with economic impact
Al Motairi, H. & Zervos, M.
(2017).
Irreversible capital accumulation with economic impact.
Applied Mathematics and Optimization,
75(3), 525-551.
https://doi.org/10.1007/s00245-016-9341-9
(2017).
Irreversible capital accumulation with economic impact.
Applied Mathematics and Optimization,
75(3), 525-551.
https://doi.org/10.1007/s00245-016-9341-9
We consider an irreversible capacity expansion model in which additional investment has a strictly negative effect on the value of an underlying stochastic economic indicator. The associated optimisation problem takes the form of a singular stochastic control problem that admits an explicit solution. A special characteristic of this stochastic control problem is that changes of the state process due to control action depend on the state process itself in a proportional way.
