Stochastic Dynamic Programming without Transition Matrices

Paul L. Fackler

No 277664, CEnREP Working Papers from North Carolina State University, Department of Agricultural and Resource Economics

Abstract: Discrete dynamic programming, widely used in addressing optimization over time, suffers from the so-called curse of dimensionality, the exponential increase in problem size as the number of system variables increases. One method to partially address this problem is to avoid the use of state transition probability matrices, which grow in the square of the size of the state space. This can be done through the use of expected value (EV) functions, which compute the expectation of functions of the future state variables conditioned on current variables. Two ways that this leads to potential gains arise when the state transition can be broken into separate phases and when the transitions for different state variables are conditionally independent. Both of these situations arise in models that are used in natural resource management and are illustrated with several examples.

Keywords: Environmental; Economics; and; Policy (search for similar items in EconPapers)
Pages: 24
Date: 2018-09-24
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:nccewp:277664

DOI: 10.22004/ag.econ.277664

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