Title

Optimal Investment in Heterogeneous Capital and Technology Under Restricted Natural Resource

Document Type

Article

Publication Date

10-1-2014

Abstract

We consider the optimal control of nonlinear integral equations with endogenous delay and state constraints, which describe a developing economy subjected to resource constraints. The economy invests in new resource-efficient technologies, invests in new capital, and scraps obsolete capital. We derive the optimality condition and determine long-term asymptotically exponential trajectories that optimally combine scrapping the dirtiest capital and developing new clean technologies. Next, we study the short-term dynamics of the model and show that it leads to a sustainable growth with active resource constraint.

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