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Dynamic IC and dynamic programming

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  • Suehyun Kwon

Abstract

This paper develops a dynamic programming method when the one-stage deviation principle in the sense of mechanism design literature doesn’t hold. The commonly used dynamic programming method is valid only if the one-stage deviation principle in the sense of mechanism design literature is satisfied; it doesn't hold in every model, and the one-stage deviation principle in the sense of repeated games does hold but requires the equilibrium strategy of every player off the equilibrium path and is impractical. The dynamic programming method developed in this paper requires transfinite induction, and therefore one needs to specify the stopping times for two dimensions.

Suggested Citation

  • Suehyun Kwon, 2019. "Dynamic IC and dynamic programming," CESifo Working Paper Series 7564, CESifo.
    • Handle: RePEc:ces:ceswps:_7564
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp7564.pdf
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    References listed on IDEAS

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    1. Dilip Abreu & Benjamin Brooks & Yuliy Sannikov, 2016. "A "Pencil Sharpening" Algorithm for Two Player Stochastic Games with Perfect Monitoring," Working Papers 78_2016, Princeton University, Department of Economics, Econometric Research Program..
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    More about this item

    Keywords

    dynamic programming; one-stage deviation; transfinite induction; stopping time;
    All these keywords.

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