Abstract
This paper deals with the characterization of an economic policy that over the longrun leads to the elimination of labour-surplus, i.e. one which directs the labour force from less productive or idleness to more highly productive employment.
Crucial is here the assumption that the rational response of individuals to economic development policies is uncertain and only partially known. Therefore, the dynamics of the labour participation in the more productive activities is stochastic and described by a stochastic differential equation of the diffusion type. We solve the associated stochastic optimization problem using semi-martingale techniques which we introduce in some detail with the purpose of making this paper self-contained. Our presentation is, however, intuitive and heuristic, since our emphasis lies in applications rather than in theories.
Keywords
- Stochastic Differential Equation
- Stochastic Control
- Local Martingale
- Labour Participation
- Stochastic Control Problem
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Davis, M.H.A., Gómez M., G.L. (1987). The semi-martingale approach to the optimal resource allocation in the controlled labour-surplus economy. In: Albeverio, S., Blanchard, P., Streit, L. (eds) Stochastic Processes — Mathematics and Physics II. Lecture Notes in Mathematics, vol 1250. Springer, Berlin, Heidelberg. https://doi.org/10.1007/BFb0077347
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DOI: https://doi.org/10.1007/BFb0077347
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