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A simple proof of the necessity of the transversality condition

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  • Takashi Kamihigashi

    () (RIEB, Kobe University, Rokkodai, Nada, Kobe 657-8501, JAPAN)

Abstract

This note provides a simple proof of the necessity of the transversality condition for the differentiable reduced-form model. The proof uses only an elementary perturbation argument without relying on dynamic programming. The proof makes it clear that, contrary to common belief, the necessity of the transversality condition can be shown in a straightforward way.

Suggested Citation

  • Takashi Kamihigashi, 2002. "A simple proof of the necessity of the transversality condition," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 20(2), pages 427-433.
  • Handle: RePEc:spr:joecth:v:20:y:2002:i:2:p:427-433
    Note: Received: January 22, 2001; revised version: April 2, 2001
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    References listed on IDEAS

    as
    1. Kamihigashi, Takashi, 2003. "Necessity of transversality conditions for stochastic problems," Journal of Economic Theory, Elsevier, vol. 109(1), pages 140-149, March.
    2. Takashi Kamihigashi, 2000. "A simple proof of Ekeland and Scheinkman's result on the necessity of a transversality condition," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 15(2), pages 463-468.
    3. Bezalel Peleg & Harl E. Ryder, 1972. "On Optimal Consumption Plans in a Multi-sector Economy," Review of Economic Studies, Oxford University Press, vol. 39(2), pages 159-169.
    4. Kamihigashi, Takashi, 2001. "Necessity of Transversality Conditions for Infinite Horizon Problems," Econometrica, Econometric Society, vol. 69(4), pages 995-1012, July.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Transversality condition; Reduced-form model; Dynamic optimization.;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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