 Necessity of Transversality Conditions for Stochastic ProblemsDepartment of Economics Working Papers from Stony Brook University, Department of Economics Abstract: This paper establishes (i) an extension of Michel's (1990, Theorem 1) necessity result to an abstract reduced-form model, (ii) a generalization of the results of Weitzman (1973) and Ekeland and Scheinkman (1986), and (iii) a new result that is useful particularly in the case of homogeneous returns. These results are shown for an extremely general discrete-time reduced-form model that does not assume differentiability, continuity, or concavity, and that imposes virtually no restriction on the state spaces. The three results are further extended to a stochastic reduced-form model. The stochastic extensions are easily accomplished since our deterministic model is so general that the stochastic model is in fact a special case of the deterministic model. We apply our stochastic results to a stochastic reduced-form model with homogeneous returns and a general type of stochastic growth model with CRRA utility. Keywords: Transversality condition; stochastic optimization; stochastic reduced-form model; homogeneous returns; stochastic growth model. (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:nys:sunysb:01-02 Access Statistics for this paper More papers in Department of Economics Working Papers from Stony Brook University, Department of Economics Contact information at EDIRC. |
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