Capital accumulation games with a non-concave production function

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jebo.2005.04.004 Byline: Engelbert J. Dockner (a), Kazuo Nishimura (b) Keywords: Non-concave production function; Capital accumulation; Open-loop Nash equilibrium; Markov perfect equilibrium Abstract: We consider an economy with a single capital stock that two agents strategically exploit by choosing a consumption profile over an infinite time horizon. We analyze two different games and their corresponding equilibria. In one game firms are able to pre-commit and choose simple time functions as their strategies. In the other game agents are assumed to employ Markov strategies. It turns out that in the case of pre-commitment there exists a threshold level of the capital stock such that if the initial stock is above this threshold, equilibrium consumption converges to the efficient steady state while if the initial condition is below it, the capital stock converges to zero. In case of the Markov equilibrium there exists a unique interior steady state that is globally stable. Author Affiliation: (a) Department of Finance, University of Vienna, Brunner StraAe 72, 1210 Vienna, Austria (b) Institute of Economic Research, Kyoto University, Yoshidahonmachi Sakyoku, Kyoto 606-8501, Japan