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answer9 - Solutions to Problem Set 9 EC720.01 - Math for...

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Unformatted text preview: Solutions to Problem Set 9 EC720.01 - Math for Economists Peter Ireland Boston College, Department of Economics Fall 2009 Due Thursday, November 12 1. Natural Resource Depletion A social planner chooses continuously differentiable functions c ( t ) and s ( t ) for t [0 , ) to maximize Z e- t ln( c ( t )) d t, (1) subject to s (0) = s given and- c ( t ) s ( t ) (2) for all t [0 , ). a. The Hamiltonian for this problem can be defined as H ( s ( t ) , ( t ); t ) = max c ( t ) e- t ln( c ( t ))- ( t ) c ( t ) . b. According to the maximum principle, the solution to the social planners problem is characterized by the first-order condition e- t c ( t )- ( t ) = 0 and the pair of differential equations ( t ) =- H s ( s ( t ) , ( t ); t ) = 0 and s ( t ) = H ( s ( t ) , ( t ); t ) =- c ( t ) . c. Probably the easiest way to solve the pair of differential equations shown above is to use a guess-and-verify method. Accordingly, guess that those differential equations have solutions for the form ( t ) = and s ( t ) = 1 e- t + k, where and k are two constants that remain to be determined. The proposed solution for ( t ) implies that...
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answer9 - Solutions to Problem Set 9 EC720.01 - Math for...

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