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Time Horizon, Objective Function, and Uncertainty in a Multiperiod Model of Firm Growth
Author(s) -
Boussard JeanMarc
Publication year - 1971
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1238224
Subject(s) - time horizon , horizon , constraint (computer aided design) , mathematical economics , simple (philosophy) , consumption (sociology) , arbitrage , function (biology) , economics , mathematical optimization , production (economics) , mathematics , microeconomics , financial economics , social science , philosophy , geometry , epistemology , evolutionary biology , sociology , biology
Abstract The growing literature pertaining to multiperiod programming models of farm growth raises three problems that are ordinarily solved with makeshift solutions: the duration of time to be included within the planning horizon; the arbitrage between present and future consumption; and the introduction of uncertainty. The connections between these questions are shown. The net worth of the firm at the end of the planning horizon is maximized under the constraint of a linear consumption function. In this case it is possible to use the turnpike theorem and some additional theorems on separability of matrices to derive a simple rule for deciding on the appropriate length of planning horizon. The introduction of uncertainty shortens the practical planning horizon defined according to this rule.