Value Function Iteration for several decision variables


I am trying to adapt the code from the Optimal Savings III: Occasionally Binding Constraints lecture to accommodate two decision variables (the agents are choosing labour supply as well as consumption). How do I adapt the code for accomplishing this?

Thank you very much

Hi Conway:

This is possible. In my experience, using Coleman(policy) iteration was difficult (check out Marcet et al, Journal of Monetary Economics, 2006). Another good paper for the theory is Pijoan-Mas, Review of Economic Dynamics, 2006.

Using Bellman iteration is easier but a bit slower. You can check out some old code (not very clean, but correct!), see line 190 here

If you decide to try doing Coleman (policy) iteration, I would be intersted to see what you come up with as I think it is an interesting problem.

Labor choice is within period optimization. Therefore what you need to do is basically choose c and y jointly and then do policy function iteration. It’s a bit harder than adapting the code in Optimal Growth III, if that’s the code you are referring to (otherwise could you post the link here?)