Dynamic Programming with Homogeneous Functions

A major limitation in applying the tools of dynamic programming to many economic problems has been the lack of a general theory for the case where returns are unbounded. Except for a few special cases where closed form solutions are available (linear-quadratic models and the log-Cobb Douglas growth model being the leading examples), recursive methods have not been useful. Here we establish that the basic existence, uniqueness, and convergence results of dynamic programming, which are fundamental for both theoretical and computational purposes, hold for a useful family of unbounded problems, those that are homogeneous. article no. ET982431