Dynamic Programming with State-Dependent Discounting

This paper extends the core results of discrete time infinite horizon dynamic programming to the case of state-dependent discounting. We obtain a condition on the discount factor process under which all of the standard optimality results can be recovered. Our framework is general enough to handle complications such as recursive preferences and unbounded rewards. Economic and financial applications are discussed.

 

The lecture will start with a short introduction to dynamic programming and then discuss more advanced topics covered in the paper.