Abstract:This paper characterizes the behavior of value functions in dynamic stochastic discounted programming models near fixed points of the state space. When the second derivative of the flow payoff function is bounded, the value function is proportional to a linear function plus x ψ δ . A specific formula for ψ δ is provided, which implies ψ δ continuously falls in the rate of patience.If the state variable is a martingale, the second derivative of the value function is unbounded. If the state variable is instead a… Show more
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