The Objectives of this paper are: (1) to introduce the concept of spline functions; and (2) to account for complete and partial non-reversibility with spline functions. This paper illustrates this approach using a supply response example.

Dynamic programming models with continuous state and control variables are solved approximately using numerical methods in most applications. We develop a method for measuring the accuracy of numerical solution of stochastic dynamic programming models. Using this method, we compare the accuracy...