Group for Research in Decision Analysis

Optimal growth with investment enhancing labor

Naila Hayek Université de Paris 2, France

We study a non-convex optimal growth problem with investment enhancing labor. We prove that there exists an optimal growth path, which all optimal paths are interior and we provide a condition under which at least one of them is monotonic. We also study the existence and uniqueness of the steady state. We show in particular that a rise in the efficiency of the investment enhancing labor does not necessarily lead to an increase in the steady state value of this labor. Furthermore we provide a complete study of the dynamics of the optimal solution in the special case of a logarithmic utility function and a Cobb-Douglas production function.

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