Advances in Decision Sciences
Volume 1 (1997), Issue 2, Pages 81-87
doi:10.1155/S1173912697000084
Limit policies in N-sector dynamic growth games with externalities
Ronald D. Fischer1
and Leonard J. Mirman2
1Centro de Economía Aplicada, Depto. Ingeniería Industrial, Universidad de Chile, Chile
2Dept. of Economics, U. of Virginia, Charlottesville 19104, VA, USA
Abstract
We examine an economy with n production sectors that interact via a production externality. We find a solution to the resulting dynamic differential game between sectors and compare it to the cooperative solution. As the number of sectors increases, the limiting policy is the optimal policy without a production externality. This policy is inefficient and, depending on the sign of the externality between sectors, the inefficiency is due to over- (or under-) consumption.