References and Literature
Most of the references from Chapter 6 are relevant for stochastic dynamic programming as well. The reader may want to look at Howard (1960), Blackwell (1965) and Puterman (1994), for advanced treatments.
The most complete treatment of discounted stochastic dynamic programming problems with economic applications is in Stokey, Lucas and Prescott (1989). This chapter covered almost the same material as Stokey, Lucas and Prescott, though at a slightly less technical level. In particular, I presented all the major results of stochastic dynamic programming without introducing measure theory and general Markov processes. A thorough study of stochastic dynamic programming requires a nontrivial investment in these methods. Stokey, Lucas and Prescott (1989) provide both a good introduction and the relevant references. Puterman (1994) provides a more advanced treatment. A quick understanding of some of the measure-theoretic issues can be obtained from the very easy- to-read book by Williams (1991), which also contains an excellent introductory treatment of martingales.The best survey of work on consumption is still Deaton (1991). A survey of recent work can be found in Browning and Crossley (2001). Exercise 16.10 is based on Chamberlain and Wilson (2000) and the reader is referred to this paper for some of the subtle mathematical issues that arise in determining the limiting behavior of the stochastic consumption distribution when the discount factor is equal to the inverse of the gross interest rate. The search for ideas example in subsection 16.5.2 is adapted from McCall’s (1978) labor market search model. Kortum (1994) provides the first search-theoretical model of technology choice that I am aware of. Kortum’s model is significantly more advanced, but also more insightful than the model presented in subsection 16.5.2. Ljungqvist and Sargent (2005) contains an excellent exposition of the basic McCall model. Pissarides (2001) and Rogerson, Shimer and Wright (2004) provide excellent surveys of recent work in search theory applied to labor market problems.
16.8.