Non-convex Aggregate Technology and Optimal Economic Growth

This paper examines a model of optimal growth where the aggrega-tion of two separate well behaved and concave production technologies exhibits a basic non-convexity. First, we consider the case of strictly concave utility function: when the discount rate is either low enough or high enough, there will be one steady state equilibrium toward which the convergence of the optimal paths is monotone and asymptotic. When the discount rate is in some intermediate range, we \u85nd su ¢-cient conditions for having either one equilibrium or multiple equilibria steady state. Depending to whether the initial capital per capita is lo-cated with respect to a critical value, the optimal paths converge to one single appropriate equilibrium steady state. This state might be a poverty trap with low per capita capital, which acts as the extinction state encountered in earlier studies focused on S-shapes production functions. Second, we consider the case of linear utility and provide su ¢ cient conditions to have either unique or two steady states when the discount rate is in some intermediate range. In the latter case, we give conditions under which the above critical value might not exist, N.M. Hung and C. Le Van thank the referee for very helpful remarks and criticisms. They are grateful to Takashi Kamihigashi for very fruitful discussions