Interior Optimal Chaos with Arbitrarily Low Discount Rates

In this study, we demonstrate, for an arbitrarily small discount rate, the existence of a topologically chaotic policy function that lies in the interior of the technology set in a two-sector model with smooth production and utility functions. For this purpose, we adopt CES production functions and a utility function with a constant elasticity of intertemporal substitution. The two-sector model with those functions always has a policy function lying in the interior of the technology set (interior policy function). The existence of a scramble set of a policy function may be proved even in the case in which the discount rate is arbitrarily small.
JEL Classification Number: 041.