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On the Dual Approach to Recursive Optimization

  • Messner Matthias
  • Pavoni Nicola
  • Sleet Christopher

We bring together the theories of duality and dynamic programming. We show that the dual of an additively separable dynamic optimization problem can be recursively decomposed using summaries of past Lagrange multipliers as state variables. Analogous to the Bellman decomposition of the primal problem, we prove equality of values and solution sets for recursive and sequential dual problems. In non-additively separable settings, the equivalence of the recursive and sequential dual is not guaranteed. We relate recursive dual and recursive primal problems. If the Lagrangian associated with a constrained optimization problem admits a saddle then, even in non-additively separable settings, the values of the recursive dual and recursive primal problems are equal. Additionally, the recursive dual method delivers necessary conditions for a primal optimum. If the problem is strictly concave, the recursive dual method delivers necessary and sufficient conditions for a primal optimum. When a saddle exists, states on the optimal dual path are subdifferentials of the primal value function evaluated at states on the optimal primal path and vice versa.

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Paper provided by Carnegie Mellon University, Tepper School of Business in its series GSIA Working Papers with number 2012-E12.

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Handle: RePEc:cmu:gsiawp:1288034208
Contact details of provider: Postal: Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890
Web page: http://www.tepper.cmu.edu/

Order Information: Web: http://student-3k.tepper.cmu.edu/gsiadoc/GSIA_WP.asp

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  1. Antonio Mele, 2008. "Repeated Moral Hazard and Recursive Lagrangeans," 2008 Meeting Papers 482, Society for Economic Dynamics.
  2. Nicola Pavoni & Ramon Marimon & Matthias Messner, 2005. "On the Recursive Saddle Point Method," 2005 Meeting Papers 294, Society for Economic Dynamics.
  3. Kydland, Finn E. & Prescott, Edward C., 1980. "Dynamic optimal taxation, rational expectations and optimal control," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 79-91, May.
  4. Patrick J. Kehoe & Fabrizio Perri, 2002. "International Business Cycles with Endogenous Incomplete Markets," Econometrica, Econometric Society, vol. 70(3), pages 907-928, May.
  5. Albert Marcet & Thomas J. Sargent & Juha Seppala, 1996. "Optimal taxation without state-contingent debt," Economics Working Papers 170, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2001.
  6. Harold L. Cole & Felix Kubler, 2011. "Recursive Contracts, Lotteries and Weakly Concave Pareto Sets," NBER Working Papers 17064, National Bureau of Economic Research, Inc.
  7. Matthias Messner & Nicola Pavoni & Christopher Sleet, 2012. "Recursive Methods for Incentive Problems," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(4), pages 501-525, October.
  8. YiLi Chien & Harold Cole & Hanno Lustig, 2007. "A Multiplier Approach to Understanding the Macro Implications of Household Finance," NBER Working Papers 13555, National Bureau of Economic Research, Inc.
  9. Marimon, Ramon & Quadrini, Vincenzo, 2006. "Competition, Innovation and Growth with Limited Commitment," CEPR Discussion Papers 5840, C.E.P.R. Discussion Papers.
  10. Daron Acemoglu & Mikhail Golosov & Aleh Tsyvinski, 2010. "Dynamic Mirrlees Taxation under Political Economy Constraints," Review of Economic Studies, Oxford University Press, vol. 77(3), pages 841-881.
  11. Matthias Messner & Nicola Pavoni & Sleet Christopher, 2011. "On the Dual Approach to Recursive Optimization," GSIA Working Papers 2012-E8, Carnegie Mellon University, Tepper School of Business.
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