The infinite horizon dynamic optimization problem revisited: A simple method to determine equilibrium states

Yacov Tsur, Amos Zemel*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

22 Scopus citations

Abstract

This work addresses intertemporal decision problems in which the policy adopted at any given time affects the state of the system during later periods. The standard treatment of such problems employs dynamic optimization methods. When the planning period extends over an infinite time horizon, the identification of the optimal equilibrium states is of prime importance. In this work we introduce a method to reduce the identification task to the algebraic problem of solving for the roots of a simple function of the state variable, denoted the evolution function. An explicit expression for the evolution function is derived for a general setup that covers a large variety of economic and management models. When the evolution function possesses a unique feasible root, the steady state is readily identified and a characterization of the dynamic behavior is possible. The application of the proposed method is illustrated by considering several resource exploitation problems.

Original languageEnglish
Pages (from-to)482-490
Number of pages9
JournalEuropean Journal of Operational Research
Volume131
Issue number3
DOIs
StatePublished - 16 Jun 2001

Keywords

  • Dynamic optimization
  • Equilibrium states
  • Evolution functions
  • Resource exploitation

Fingerprint

Dive into the research topics of 'The infinite horizon dynamic optimization problem revisited: A simple method to determine equilibrium states'. Together they form a unique fingerprint.

Cite this