Non-Convexities in Dynamic Programming Problems


We study the properties of models where agents choose over non-convex budget sets due to extensive margin decisions and  fixed costs.

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Abstract. Models where agents choose over non-convex budget sets are commonly used in the analysis of economic problems with extensive margin decisions and  fixed costs. Their solutions have interesting and distinctive features that are especially relevant in quantitative applications.  We describe how problems with non-convex choice sets differ from standard problems and investigate under which circumstances the inclusion of random shocks makes their solution identical to the solution of standard problems. A simple framework is provided for the analysis of these problems and a numerical example is illustrated.

Citation

@article{gallipoli2008non,
  title={Non-convexities in dynamic programming problems},
  author={Gallipoli, Giovanni and Nesheim, Lars},
  year={2013}
}

Author: gallipol

Giovanni Gallipoli is a professor at UBC in Vancouver. Giovanni's research focuses on the origins and consequences of economic inequality with a focus on how heterogeneity shapes individual behaviors and aggregate economic outcomes. Giovanni has worked on a variety of topics, including the equilibrium effects of policies that promote skill formation; the link between skill heterogeneity and a country's comparative advantage; the influence of families on long-term outcomes such as labor supply and consumption; intergenerational mobility and the linkages between parental heterogeneity and inequality; and how firm-level differences contribute to variation in workers’ skill returns. Giovanni is a recipient of the Killam Research Award, the FEEM Award, and the Young Economist Award of the European Economic Association. He is a CEPR research fellow as well as a former Fulbright Scholar and Weatherhall fellow. He serves as a member of the external board of overseers of the Panel Study of Income Dynamics (PSID) and as an associate editor of the Journal of Political Economy. Giovanni is an alumnus of the Sant'Anna School of Advanced Studies and the University of Pisa in Italy. He received his Ph.D. in Economics from University College London in the UK.