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.
Working Paper No. 172
Comparative Statics in Dynamic Programming Models with an Application to Job Search
Working Paper
Reference
Albrecht, James W., Bertil Holmlund and Harald Lang (1986). “Comparative Statics in Dynamic Programming Models with an Application to Job Search”. IFN Working Paper No. 172. Stockholm: Research Institute of Industrial Economics (IFN).
Albrecht, James W., Bertil Holmlund and Harald Lang (1986). “Comparative Statics in Dynamic Programming Models with an Application to Job Search”. IFN Working Paper No. 172. Stockholm: Research Institute of Industrial Economics (IFN).
Authors
James W. Albrecht, Bertil Holmlund, Harald Lang