Approximating Closed Form Solutions to a Class of Feedback Policies

Leif Sandal ()

No 2009/8, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

Abstract: Dynamic optimization problems cover a large class of problems in theoretical and applied economics. A simple iterative algorithm with fast convergence is proposed. It is demonstrated that the algorithm in a few steps produce excellent analytic (closed form) approximations including error bounds to a class of nonlinear problems. The algorithmic scheme is also well suited to produce numerical solutions. The notions of dynamic and potential rents are operationalized. The algorithm is utilizing a relation balancing these concepts. The result is particularly strong in the case of zero discounting where the exact CU-optimal policy is determined in a single step. Applying a particular seed in the general convergent scheme reproduces in a simple way results (formulas) published in the last decade in bioeconomics.

Keywords: Closed form approximations; Contraction algorithm; Renewable resource economics; Capital dynamic modeling; Zero discounting and optimality (search for similar items in EconPapers)
JEL-codes: A12 C61 C63 E10 Q00 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2009-09-15
New Economics Papers: this item is included in nep-cmp and nep-mac
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