Complicated Dynamics and Parametric Restrictions in the Robinson-Solow-Srinivasan (RSS) Model

Abstract

The delineation of the optimal policy function (OPF) in the discounted setting has remained an open question since the 2005 demonstration of optimal topological chaos (OTC) in a particular instance of the 2-sector RSS model. This paper provides an explicit solution of the OPF when the discount factor is less than the labor/capital-output ratio a. With OTC conceived both as period-three cycles and turbulence, it establishes the existence of OTC for non-negligible parametric ranges of the model, shows the identified ranges also to be necessary, presents exact restrictions on a, and extends the 1996 Mitra-Nishumura-Yano theorems on discount-factor restrictions.