Work

Dynamic stochastic optimization for sustainability and management of overconsumption

Year: 2025

Type: article

Abstract: This paper deals with an intergenerational utility maximization problem for consuming a naturally exhaustible resource . In this context, we are at odds with the unfair standard procedure of applying a time-dependent factor for discounting the utility and introducing a suitable function for penalizing overconsumption. A finite-time horizon dynamic stochastic optimization problem is presented to achieve the desired target. We provide a closed-form solution to the problem which does not lead forcefully to the classical golden rule outcome of not consuming now to save the future. The theoretical findings are validated through extensive numerical experiments, with a parameter set selected based on empirical data. Such experiments highlight that optimal consumption depends strongly on the natural resource regeneration rate and the initial value of the stock.

Source: Communications in Nonlinear Science and Numerical Simulation

DOI: 10.1016/j.cnsns.2025.108960

Authors: Rosella Castellano, Roy Cerqueti

Institutions: Unitelma Sapienza University, Sapienza University of Rome, Université d'Angers

Language: English

Topic: Stochastic processes and financial applications

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,710

Funder: Sapienza Università di Roma