Technological modernization under resource scarcity

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A nonlinear optimal control problem describes the capital modernization strategy of a firm under improving technology and restrictions on available resources. The restricted resource may be space, land, labor, finance, or environmental pollution. The authors reveal a complete qualitative picture of optimal regimes and show that the only profitable long-run growth scenario uses the entire available resource and involves capital modernization. It is shown that a high price of resource or capital suppresses the technology adoption by firms and leads to the firm shutdown. In contrast, resource regulation promotes scrapping of obsolete capital and adoption of new technology and stabilizes the growth of all firms in the industry. Copyright © 2011 John Wiley & Sons, Ltd.

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