Recursive Methods for Incentive Problems
46 Pages Posted: 27 Mar 2011 Last revised: 17 Aug 2012
Date Written: October 1, 2011
Many separable dynamic incentive problems have primal recursive formulations in which utility promises serve as state variables. We associate families of dual recursive problems with these by selectively dualizing constraints. We make transparent the connections between recursive primal and dual approaches, relate value iteration under each and give conditions for such value iteration to be convergent to the true value function.
Keywords: Dynamic Contracts, Duality, Dynamic Programming
JEL Classification: C61, C73, D82, D86, E61
Suggested Citation: Suggested Citation