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Approximating Closed Form Solutions to a Class of Feedback Policies

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  • Sandal, Leif K.

    () (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

Abstract

Dynamic optimization problems cover a large class of problems in theoretical and applied economics. A simple iterative algorithm with fast convergence is proposed. It is demonstrated that the algorithm in a few steps produce excellent analytic (closed form) approximations including error bounds to a class of nonlinear problems. The algorithmic scheme is also well suited to produce numerical solutions. The notions of dynamic and potential rents are operationalized. The algorithm is utilizing a relation balancing these concepts. The result is particularly strong in the case of zero discounting where the exact CU-optimal policy is determined in a single step. Applying a particular seed in the general convergent scheme reproduces in a simple way results (formulas) published in the last decade in bioeconomics.

Suggested Citation

  • Sandal, Leif K., 2009. "Approximating Closed Form Solutions to a Class of Feedback Policies," Discussion Papers 2009/8, Norwegian School of Economics, Department of Business and Management Science.
  • Handle: RePEc:hhs:nhhfms:2009_008
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    File URL: http://hdl.handle.net/11250/163972
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    Keywords

    Closed form approximations; Contraction algorithm; Renewable resource economics; Capital dynamic modeling; Zero discounting and optimality;

    JEL classification:

    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • Q00 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - General

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