1. An introduction to dynamic optimization -- Optimal ...
marginal value of relaxing the constraint. In this case, that means that λ t is equal to the marginal value of the state variable, x t. The costate variable plays a critical role in dynamic optimization and has important economic meaning. The first-order conditions (FOCs) for (2) are standard: ∂ ∂ =∂ ∂ − = = =L z u z p i a b t
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