The Optimal Investment Ratio for an Economy with Changing Depreciation of Capital, Discounting of Future Consumption, and Exogenous Technical Progress

TL;DRAbstract

In a previous paper [Buhl/Eichhorn/Gleißner] we formulated and analysed a macro-economic model in which we determined optimal new-capital-investment policies under the assumption of finite lifetime of capital. During its lifetime a capital investment was supposed to perform always equally well. In contrast to this the present paper takes changing capital depreciation into account. Using discrete dynamic programming methods similar to those used in Buhl/Eichhorn/Gleißner [1982], we derive optimal investment ratios. As in the foregoing model, exogenous technical progress and discounting of future consumption are taken into consideration.

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