- Previous Article
- Next Article
- Table of Contents
Applied Mathematics and Optimization, Vol.75, No.3, 525-551, 2017
Irreversible Capital Accumulation with Economic Impact
We consider an irreversible capacity expansion model in which additional investment has a strictly negative effect on the value of an underlying stochastic economic indicator. The associated optimisation problem takes the form of a singular stochastic control problem that admits an explicit solution. A special characteristic of this stochastic control problem is that changes of the state process due to control action depend on the state process itself in a proportional way.
Keywords:Singular stochastic control;Variational inequality;Capacity expansion;Irreversible investment