Stochastic Cost Benefit Rules: A Back-of-a-Lottery-Ticket Calculation Method

In this paper, we introduce cost benefit rules for projects embedded in a stochastic optimal growth framework. We model uncertainty in terms of Brownian motion and Ito integrals. Taking the mathematical expectation of the project means that the Ito integrals vanish, and we end up with a cost benefit rule that closely resembles its deterministic counterpart.

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Year of publication:	2003-03-26
Authors:	Aronsson, Thomas ; Löfgren, Karl-Gustaf ; Nyström, Kaj
Institutions:	Institutionen för Nationalekonomi, Umeå Universitet
Subject:	Cost benefit analysis \| stochastic optimal control theory \| Brownian motion

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Extent:	application/pdf
Series:	Umeå Economic Studies.
Type of publication:	Book / Working Paper
Notes:	The text is part of a series Umeå Economic Studies Number 606 12 pages
Classification:	C60 - Mathematical Methods and Programming. General ; D61 - Allocative Efficiency; Cost-Benefit Analysis ; D81 - Criteria for Decision-Making under Risk and Uncertainty
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005651966