Onno van Hilten's Optimal Firm Behaviour in the Context of Technological PDF

By Onno van Hilten

ISBN-10: 3540535632

ISBN-13: 9783540535638

ISBN-10: 3662027186

ISBN-13: 9783662027189

This thesis is a theoretical examine of the optimum dynamic guidelines of a, to some degree, slowly adjusting enterprise that faces an exogeneously given technological development and an exogeneously given company cycle. It belongs to the realm of mathematical economics. it truly is meant to entice mathematical economists within the first position, economists within the moment position and mathematicians within the 3rd position. It involves an try and stretch the bounds of the applying of deterministic dynamic optimisation to economics, specifically to company behaviour. a well known· Dutch economist (and expert mathematician) lately acknowledged in 1 a neighborhood college newspaper that mathematical economists provide economics a foul attractiveness, because they formulate their difficulties from a mathematical viewpoint and they're merely drawn to technical, mathematical difficulties. whilst, notwithstanding, "profound as economists could be, in terms of extending or enhancing the present idea to make it appropriate to a undeniable financial challenge, an figuring out of optimum regulate conception (which is the mathematical thought utilized in this thesis, ovh) established completely on heuristic arguments will frequently change into insufficient" (SydS

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If R(K) < (1-/)r, the firm has a negative leverage, so if it has debt, it is optimal to spend all its 'accounting cash-flow' to pay back debt (the marginal return on paying back debt exceeds the marginal return on investment); if it has no debt, it invests its 'accounting cash-flow'. f)r, the firm invests to maintain this equality and uses the remammg 'accounting cash-flow' to pay back debt: if it would invest more, R(K) would fall below (1-/)r which would call for an end to investment; if it would invest less, R(K) would become larger than (1-/)r and this would call for maximal investment.

This could be a negligibility assumption, but it most likely is an heuristic assumption. Separating technical and fiscal depreciation and describing both in a realistic way would make the model less elegant and would create great difficulties with regard to finding the optimal solution. In the vintage models of Chapter 7 the need, from an economic point of view, to separate fiscal and technical depreciation is even more pressing. Fortunately, the variant of the Maximum Principle, derived in Appendix 4 to cope with the vintage structure, also makes it possible to treat fiscal depreciation in a realistic way.

Y=bX=b/(1-b)K), an extra unit of capital will be financed with b/(1-b) units of debt and 1/(1 +b) units of equity. Total fmancing costs per unit of capital are therefore: i 1 b r-Fb r + r-Fb So on path 1,2,4 and 8, marginal revenue indeed equals marginal costs for different financing situations. r-t more precise (but longer) name would be: marginal revenue product of capital. 4 A feedback decision rule This section gives a feedback decision rule which characterises the optimal policy in economic terms.

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Optimal Firm Behaviour in the Context of Technological Progress and a Business Cycle by Onno van Hilten

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