Transcription of Dynamic optimization - michaelcarteronline.com
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Dynamic optimization - michaelcarteronline.com
Chapter 7 Dynamic optimizationChapter 5 deals essentially with static optimization , that is optimal choice at a singlepoint of time. Many economic models involve optimization over time. While the sameprinciples of optimization apply to Dynamic models, new considerations arise. On theone hand, the repetitive nature of Dynamic models adds additional structure to themodel which can be exploited in analyzing the solution. On the other hand, manydynamic models have nofinite time horizon or are couched in continuous time, sothat the underlying space is infinite-dimensional. This requires a more sophisticatedtheory and additional solution techniques. Dynamic models are increasingly employedin economic theory and practice, and the student of economics needs to be familiarwith their analysis. This need not be seen as an unrewarding chore - the additionalcomplexity of Dynamic models adds to their interest, and many interesting examplescan be factor complicating the study of Dynamic optimization is the existence ofthree distinct approaches, all of which areusedinpractice.
CHAPTER 7. DYNAMIC OPTIMIZATION 3 The left-hand side is the marginal benefit of consumption today. For an optimal alloca-tion, this must be equal to the marginal cost of …
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