James W. Albrecht, Bertil Holmlund and Harald Lang
James W. Albrecht: Georgetown University
Bertil Holmlund: Uppsala University
Harald Lang: Research Institute of Industrial Economics (IFN)
Abstract: This paper presents a technique for qualitative comparative statics analysis in dynamic programming models. Let the value function v be the fixed point of a contraction mapping which depends differentially on some exogenous parameter theta. Then the derivative of v with respect to theta exists and is also the fixed point of a contraction mapping. Since this derivative is the fixed point of a contraction mapping its qualitative properties can be investigated using mathematical induction. This comparative statics methodology is illustrated with an application to a model of job search.
21 pages, First version: December 1986. Revised: August 1991.
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