Complex solutions of nonconcave dynamic optimization models

Dawid, H., Kopel, M., & Feichtinger, G. (1997). Complex solutions of nonconcave dynamic optimization models. Economic Theory 9 (3) 427-439. 10.1007/BF01213847.

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In this paper we consider a class of time discrete intertemporal optimization models in one dimension. We present a technique to construct intertemporal optimization models with nonconcave objective functions, such that the optimal policy function coincides with any pre-specified C^2 function. Our result is a variant of the approach presented in a seminal paper by Boldrin and Montrucchio (1986). Whereas they solved the inverse problem for the reduced form models, we address the different question of how to construct both reduced and primitive form models. Using our technique one can guarantee required qualitative properties not only in reduced, but also in primitive form. The fact that our constructed model has a single valued and continuous optimal policy is very important as, in general, nonconcave problems yield set valued optimal policy correspondences which are typically hard to analyze. To illustrate our constructive approach we apply it to a simple nonconcave model.

Item Type: Article
Research Programs: World Population (POP)
Bibliographic Reference: Economic Theory; 9(3):427-439 (October 1997)
Depositing User: IIASA Import
Date Deposited: 15 Jan 2016 02:08
Last Modified: 27 Aug 2021 17:15

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