Comparative Statics in Dynamic Programming Models with an Application to Job Search
This paper presents a technique for qualitative comparative statics analysis in dynamic programming models. Let the value function v be the fixed point of a contraction mapping which depends differentially on some exogenous parameter theta. Then the derivative of v with respect to theta exists and is also the fixed point of a contraction mapping. Since this derivative is the fixed point of a contraction mapping its qualitative properties can be investigated using mathematical induction. This comparative statics methodology is illustrated with an application to a model of job search.
|Date of creation:||Dec 1986|
|Date of revision:||Aug 1991|
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- Araujo, A & Scheinkman, Jose A, 1977. "Smoothness, Comparative Dynamics, and the Turnpike Property," Econometrica, Econometric Society, vol. 45(3), pages 601-620, April.
- Sharma, Sunil, 1987. "On the existence and uniqueness of value functions in models of labor market dynamics," Economics Letters, Elsevier, vol. 24(4), pages 349-352.