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On the possibility of extinction in a class of Markov processes in economics

Journal of Mathematical Economics
Publication Date
DOI: 10.1016/j.jmateco.2007.01.005
  • Stochastic Dynamic Model
  • Extinction
  • Conservation
  • Markov Process
  • Transition Function
  • Safe Standard
  • Economics
  • Mathematics


Abstract We analyze the possibility of eventual extinction of a replenishable economic asset (natural resource or capital) whose stocks follow a stationary Markov process with zero as an absorbing state. In particular, the stochastic process of stocks is determined by a given sequence of i.i.d. random variables with bounded support and a positive-valued transition function that maps the current level of the stock and the current realization of the random variable to the next period’s stock. Such processes arise naturally in stochastic dynamic models of economic growth and exploitation of natural resources. Under a minimal set of assumptions, the paper identifies conditions for almost sure extinction from all initial stocks as well as conditions under which the stocks enter every neighborhood of zero infinitely often almost surely. Our results emphasize the crucial role played by the nature of the transition function under the worst realization of the random shock and clarifies the role of the “average” rate of growth in the context of extinction.

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