Title

Transversality Conditions and Dynamic Economic Behavior

Abstract

Transversality conditions are optimality conditions often used along with Euler equations to characterize the optimal paths of dynamic economic models. This article explains the foundations of transversality conditions using a geometric example, a finite horizon problem, and an infinite horizon problem. Their relationships to asset bubbles, hyperdeflations, and no-Ponzi-game conditions are also discussed.


Takashi KAMIHIGASHI
Research Institute for Economics and Business Administration
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: (81) 78 803 7036
Fax: (81) 78 803 7059