Universität zu Köln

Pavoni, Nicola, Sleet, Christopher and Messner, Matthias (2018). The Dual Approach to Recursive Optimization: Theory and Examples. Econometrica, 86 (1). S. 133 - 173. HOBOKEN: WILEY. ISSN 1468-0262

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Abstract

We develop a recursive dual method for solving dynamic economic problems. The method uses a Lagrangian to pair a dynamic recursive economic problem with a dual problem. We show that such dual problems can be recursively decomposed with costates (i.e., Lagrange multipliers on laws of motion) functioning as state variables. In dynamic contracting and policy settings, the method often replaces an endogenous state space of forward-looking utilities with an exogenously given state space of costates. We provide a principle of optimality for dual problems and give conditions under which the dual Bellman operator is a contraction with the optimal dual value function its unique fixed point. We relate economic problems to their duals, address computational issues, and give examples.

Item Type:	Journal Article
Creators:	Creators Email ORCID ORCID Put Code Pavoni, Nicola UNSPECIFIED UNSPECIFIED UNSPECIFIED Sleet, Christopher UNSPECIFIED UNSPECIFIED UNSPECIFIED Messner, Matthias UNSPECIFIED UNSPECIFIED UNSPECIFIED
URN:	urn:nbn:de:hbz:38-204126
DOI:	10.3982/ECTA11905
Journal or Publication Title:	Econometrica
Volume:	86
Number:	1
Page Range:	S. 133 - 173
Date:	2018
Publisher:	WILEY
Place of Publication:	HOBOKEN
ISSN:	1468-0262
Language:	English
Faculty:	Unspecified
Divisions:	Unspecified
Subjects:	no entry
Uncontrolled Keywords:	Keywords Language LIMITED COMMITMENT; GAMES Multiple languages Economics; Mathematics, Interdisciplinary Applications; Social Sciences, Mathematical Methods; Statistics & Probability Multiple languages
Refereed:	Yes
URI:	http://kups.ub.uni-koeln.de/id/eprint/20412