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Reduction Of State Variable Dimension In Stochastic Dynamic Optimization Models Which Use Time-Series Data

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  • Burt, Oscar R.
  • Taylor, C. Robert

Abstract

Statistical procedures are developed for reducing the number of autonomous state variables in stochastic dynamic optimization models when these variables follow a stationary process over time. These methods essentially delete part of the information upon which decisions are based while maintaining a logically consistent model. The relatively simple linear autoregressive process as well as the general case is analyzed and the necessary formulae for practical application are derived. Several applications in agricultural economics are discussed and results presented which quantify the relative amount of information sacrificed with the reduction in number of state variables.

Suggested Citation

  • Burt, Oscar R. & Taylor, C. Robert, 1989. "Reduction Of State Variable Dimension In Stochastic Dynamic Optimization Models Which Use Time-Series Data," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 14(2), pages 1-10, December.
    • Handle: RePEc:ags:wjagec:32349
    DOI: 10.22004/ag.econ.32349
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    References listed on IDEAS

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    1. Richard Bellman, 1957. "On a Dynamic Programming Approach to the Caterer Problem--I," Management Science, INFORMS, vol. 3(3), pages 270-278, April.
    2. Burt, Oscar R., 1982. "Dynamic Programming: Has Its Day Arrived?," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 7(2), pages 1-14, December.
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    Cited by:

    1. Heman D. Lohano & Robert P. King, 2009. "A Stochastic Dynamic Programming Analysis of Farmland Investment and Financial Management," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 57(4), pages 575-600, December.
    2. James Nolan & Dawn Parker & G. Cornelis Van Kooten & Thomas Berger, 2009. "An Overview of Computational Modeling in Agricultural and Resource Economics," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 57(4), pages 417-429, December.
    3. Lohano, Heman Das, 2002. "A Stochastic Dynamic Programming Analysis of Farmland Investment and Financial Management," Faculty and Alumni Dissertations 309035, University of Minnesota, Department of Applied Economics.
    4. Tronstad, Russell, 1997. "Value of Pregnancy Testing Range Cows," 1997 Annual Meeting, July 13-16, 1997, Reno\ Sparks, Nevada 35771, Western Agricultural Economics Association.
    5. King, Robert P. & Lohano, Heman D., 2006. "Accuracy of Numerical Solution to Dynamic Programming Models," Staff Papers 14230, University of Minnesota, Department of Applied Economics.

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