Econometrica: May 1978, Volume 46, Issue 3

Transversality Condition in a Multi-Sector Economy under Uncertainty

https://doi.org/0012-9682(197805)46:3<515:TCIAME>2.0.CO;2-B
p. 515-525

Itzhak Zilcha

Our model of a multi-sector infinite horizon economy contains uncertainty about future input-output possibilities and labor supply. Future utilities are not discounted. Even under perfect certainty a competitive program which satisfies some transversality condition (e.g., a bounded price system) does not have to be optimal. We prove that if the technology satisfies some concavity condition, a necessary and sufficient condition for optimality of any competitive program is that the expected present value of the inputs (or outputs) be bounded over time.

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