7 Appendix
Lemma 1 Using (12) and (13), then Fκ(k) = (1 + c1 ) r.
Proof. Differentiate (12) w.r.t. time and substitute it in (13), then Fχ (k) =
(1 + ci) r is implied. ■
Lemma 2 Using (2), (9), (10), cv = cvQe'xt and λ = ʌoeʌt, then Fe(k) = w +
≡yθj r - λ + β (Ù - V) + у .
Proof. Differentiate (2) w.r.t. V and (9) w.r.t. time, use cv := cvQe'xt and
λ := ʌoeʌt, then
e~rtcυ (r - λ) + 1-β [μι + μ1β (Ù - V)] θ- = = 0
ʌ
^ -μι = γ-λ3βe~rtcυ (r - λ) θβ + μ1β (Ù - V) .
Substitute (10) for -/11, then
ʌ
γ-Γβe~rtcυ (r - λ) θβ + μ1β (/ - V) = e-rt [Fe(k) - w] - μ1n
and substitute (9) for μ1, then
ʌ ʌ
c l λ ∕i [β (/ - V) + n∖ = Fe(k) - W - c /" θ (r - λ)
1 — βL∖ / J 1 — β ∖ /
ʌ
^ Fe(k) = w + cυ ʌ r - λ + β (Ù - V) + y θβ.
1 — β L ∖ / -
Therefore, (16) is implied. ■
Proposition 3 Using (1), (6), (7a), (15), (16) and (20), then the efficient factor
allocation function Φι(k) := —^λ°,∙, ka = θβ follows.
c^λ[{τ+rUka 1+"7-λ]
Proof. Differentiate (7a) w.r.t. E, substitute this and (6) in (16), then
θβ = (1 - qQ (1 - β)(1 - ш) λ ka
. . . .
cυλ r + β (и - V) + у - λ
Differentiate (7a) w.r.t. K and substitute this, (15), λ = λoext and cυ = cvqcxt in
the above equation, then
θβ = (1 - qQ (1 - β) (1 - ʃ) λo k“
cυ0λ [ɪkɑ-1 + β(/ - V) + n - λ
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