The New Palgrave Dictionary of Economics Online recursive contracts
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چکیده
A number of dynamic models in economics are formulated with forward-looking elements in the constraints – for example, models of risk-sharing with participation constraints and models of optimal policy. Here, standard dynamic programming does not apply. Recent contributions show how to reformulate these models by either rewriting the forward-looking constraints (promised utility approach) or by using a Lagrangean formulation (recursive Lagrangean). Both make it possible to obtain a recursive formulation that allows for easier computation and analytical results. A number of applications can be found to optimal fiscal or monetary policy, risk sharing or investment with various financial constraints, and employment decisions.
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