Journal of Applied Mathematics and Decision Sciences
Volume 1 (1997), Issue 2, Pages 81-87
Limit policies in N-sector dynamic growth games with externalities
1Centro de Economía Aplicada, Depto. Ingeniería Industrial, Universidad de Chile, Chile
2Dept. of Economics, U. of Virginia, Charlottesville 19104, VA, USA
Copyright © 1997 Ronald D. Fischer and Leonard J. Mirman. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
We examine an economy with 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.