- Skiba points for small discount rates
- Journal of Optimization Theory and Applications
- Volume | Issue number
- 128 | 2
- Pages (from-to)
- Number of pages
- Document type
- Faculty of Economics and Business (FEB)
- Amsterdam School of Economics Research Institute (ASE-RI)
The present article uses perturbation techniques to approximate the value function of an economic minimization problem for small values of the discount rate. This can be used to obtain the approximate location of the Skiba states in the problem; these are states for which there are two distinct optimal state trajectories, converging to different optimal steady states. It is shown that the sets of these indifference thresholds are locally smooth manifolds. For a simple example, all relevant quantities are computed explicitly. Moreover, the approximation can be used to obtain parameter-dependent approximations to the indifference manifolds.
Keywords Multiple optimal equilibria - indifference points - perturbation methods - optimal bifurcations
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