GTAP Resources: Resource Display
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"Alternative Investment Dynamics Schemes: Implementation Based on A Recursive Dynamic Model" by Babiker, Mustafa and Mei Yuan Abstract This paper documents a set of alternative investment dynamics schemes implemented in the recursive dynamic MIT’s U.S. Regional Energy Policy (USREP) model. Compared to the current investment dynamics that ignores the price-based investment behavior, the alternative investment schemes endogenize investment decisions through various mechanisms that relate investment cost with the rate of return to capital. Specifically, one alternative scheme applies Tobin’s q through an endogenous adjustment of investment such that investment cost is equalized to replacement value of capital assets. To enable the representative agent to adjust investment based on past information or future expectation, we introduce hybrid investment dynamic schemes, namely the adaptive expectation and forward-looking rational expectation. Both hybrid schemes follow the Bellman’s Principle of Optimality and impose an arbitrage condition across periods on investment cost justified by the rate of return to capital taking into account depreciation. Furthermore, the forward-looking rational expectation investment scheme shows robustness in converging to the optimal path when considering adjustment cost to investment and variation in initial starting values. |
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- Climate change policy - Environmental policies - Other data bases and data issues - Domestic policy analysis - Economic growth - Dynamic modeling - Model extension/development - Partial and general equilibrium models - North America |
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Public Access  Paper (316.9 KB) Replicated: 0 time(s)Restricted Access No documents have been attached. Special Instructions No instructions have been specified. |
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Last Modified: 9/15/2023 1:05:45 PM
