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Optimal timing of decisions: A general theory based on continuation values

Qingyin Ma and John Stachurski

Journal of Economic Dynamics and Control, 2019, vol. 101, issue C, 62-81

Abstract: By extending a methodology dating back to Jovanovic (1982), we develop a comprehensive theory of optimal timing of decisions based on continuation value functions and operators that act on them. Rewards can be bounded or unbounded. One advantage of this approach over standard Bellman methods is that continuation value functions are smoother than value functions. Another is that, for a range of problems, the continuation value function exists in a lower dimensional space than the value function. We exploit these advantages to obtain a range of new results on optimality, optimal behavior and efficient computation.

Keywords: Continuation values; Dynamic programming; Optimal timing (search for similar items in EconPapers)
JEL-codes: C61 C63 E00 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.jedc.2019.02.003

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