We show that the standard Value Function Iteration (VFI) algorithm has difficulties approximating models with jump discontinuities in policy functions. We find that VFI fails to accurately identify the location and size of jump discontinuities while other methods - such as the Endogenous Grid...

Value function iteration is one of the standard tools for the solution of the Ramsey model. We compare six different ways of value function iteration with regard to speed and precision. We find that value function iteration with cubic spline interpolation between grid points dominates the other...

Common integrated assessment models produce the counterintuitive result that higher risk aversion does not lead to stronger near-term abatement. This paper re-examines this result with a DICE model that is fully coupled with a thermohaline circulation model. It also features Epstein-Zin utility...

Common integrated assessment models produce the counterintuitive result that higher risk aversion does not lead to stronger near-term abatement. This paper re-examines this result with a DICE model that is fully coupled with a thermohaline circulation model. It also features Epstein-Zin utility...

The transition paths from plan to market have varied markedly across countries. Central and Eastern European and the Baltic countries, which opted for a fast and profound transformation of their institutions including business climates, rapidly narrowed the productivity gap with advanced...

The transition paths from plan to market have varied markedly across countries. Central and Eastern European and the Baltic countries, which opted for a fast and profound transformation of their institutions including business climates, rapidly narrowed the productivity gap with advanced...

We propose the relaxation algorithm as a simple and powerful method for simulating the transition process in growth models. This method has a number of important advantages: (1) It can easily deal with a wide range of dynamic systems including stiff differential equations and systems giving rise...

The Dasgupta-Heal-Solow-Stiglitz model of capital accumulation and resource depletion poses the following sustainability problem: is it feasible to sustain indefinitely a level of consumption that is bounded away from zero? We provide a complete technological characterization of the...

We develop a simple model of managing a system subject to pollution damage under risk of an abrupt and random jump in the damage coefficient. The model allows the full dynamic characterization of the optimal emission policies under uncertainty. The results, that imply prudent behavior due to...

We characterize the second-best allocation in a Mirrleesian optimal tax model where agents differ in multiple dimensions and the planner can tax multiple goods non-linearly. We develop a new method that allows us to solve the partial differential equations that describe the optimum regardless of...