Approximating Closed Form Solutions to a Class of Feedback Policies

28 Pages Posted: 8 Dec 2009

See all articles by Leif Kristoffer Sandal

Leif Kristoffer Sandal

Norwegian School of Economics (NHH) - Department of Business and Management Science

Date Written: October 30, 2009

Abstract

Dynamic optimization problems cover a large class of problems in theoretical and applied economics. A simple iterative algorithm with fast convergence is proposed. It is demonstrated that the algorithm in a few steps produce excellent analytic (closed form) approximations including error bounds to a class of nonlinear problems.The algorithmic scheme is also well suited to produce numerical solutions. The notions of dynamic and potential rents are operationalized. The algorithm is utilizing a relation balancing these concepts. The result is particularly strong in the case of zero discounting where the exact CU-optimal policy is determined in a single step. Applying a particular seed in the general convergent scheme reproduces in a simple way results (formulas) published in the last decade in bioeconomics.

Keywords: Closed form approximations, Contraction algorithm, Renewable resource economics, Capital dynamic modeling, Zero discounting and optimality

JEL Classification: A12, C61, C63, E10, Q00

Suggested Citation

Sandal, Leif Kristoffer, Approximating Closed Form Solutions to a Class of Feedback Policies (October 30, 2009). NHH Dept. of Finance & Management Science Discussion Paper No. 2009/8, Available at SSRN: https://ssrn.com/abstract=1496869 or http://dx.doi.org/10.2139/ssrn.1496869

Leif Kristoffer Sandal (Contact Author)

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway
+47 55 95 93 41 (Phone)

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