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Differentiability of the value function and Euler equation in non-concave discrete time stochastic dynamic programming

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URI: https://hdl.handle.net/10016/33936
ISSN: 2196-1085
DOI: https://doi.org/10.1007/s40505-019-00166-4
UXXI: AR/0000029201
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Differentiability_ETB_2019_ps.pdf (302.3 KB)
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2019-03-25
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Springer
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Abstract
We consider a stochastic, non-concave dynamic programming problem admitting interior solutions and prove, under mild conditions, that the expected value function is differentiable along optimal paths. This property allows us to obtain rigorously the Euler equation as a necessary condition of optimality for this class of problems.
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Dynamic programming, Euler equation, Envelope theorem
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Rincón Zapatero, J.P. (2019). Differentiability of the value function and Euler equation in non-concave discrete-time stochastic dynamic programming. Economic Theory Bulletin, 8, pp. 79-88.
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