M.A Mathematical Appendix This appendix contains quick and unsysematic eviewof some ofthe mathematical conceps and techniques used inthe tet “The formal eats are quoted ar “Theorems” and they are iy rigorously sated Ie sems well in a tchnial appendix euch az th to provide mottational remarks examples, and general ess fr some prefs. Ths we often do under the label ofthe "Proof ofthe mathematical theorem under dscsson. Nonetheless, no rigor of any sot intended bere. Perhaps the heading "Discusion of Theorem” Would be more acort Te goes without saying that this appendix i no eubttate for a more extensive and systematic, book-length, weatment. Good references for some or most ofthe materi covered in thi appends, as well as for further background reading are Simon aod Blame (1993) Sydsaeter and Hammond (194), Novshek (193), Dixit (0990), Chang (1986), and ftrligator (1971. Matrix Notation for Derivatives ‘We begin by reviewing rome mates of notation. The fst and mast important i ‘hat formally and mathematically a "vector" RY ie a colama. Tis applies to any sector it des ot mater, or example, ithe vector represents quantities or pres. TW applies alo to the gradient vector UJ/)ER" of a function at a point this the vector whore mth entry i the pat dvitatie wih respect to the mth variable ofthe eabvalved function =A" ~ R, erluated atthe point eR Exposionally however, because rows ake les spice to diapay, we yall describe ‘vectors horizontally inthe text as nx = (x...) Bat the role has no exception Sil vectors ae mathematically clumes “Te inner produc oftwo W vectors xe RY and ye Ris written as.x-) = De It we view thee vectors as Nx I mate, we see that xy = xp, where Fis the ti transposition operator. An expression suchas "x-" can always be read a SST example, the expesion x- A, where A ie an N x M mata i the same a5 TL J: RY — RM ea vectoralved difeentinble function, then at any xe R™ we denote by DfCe) the Mx N mate whove math entry is Qfu(ai2x, Note, in ee particular, that Kf M = 1 (0 that f(a) eR) then Djs) fs x N mati: in fact sls) = (Dfta)}. To avoid ambiguity, in ome cases we write D, f(x) 10 ndieate plicit the variables with respect to which the funtion f()s being ieretinted For example with hit notation, f:°"* RY ia function whose arguments are the vector RY and y¢ RY the mates, fx 9) the M > N matte whose math try Ofte 90x Pally, fora teal-valed diferente function f: RY — Rthe “esion matric D(x) isthe derivative matt of the vector-valued gradient function fers ie, D's) = DEP) Tn the remainder of thi section, we consider diferenablefanction and examine hove two welhknowa rls of ealeuls~the cain rule andthe product rle—come The Chain Rute Suppote that g: RE Rand RY + RM are diferente fnetons. The composite function f(g) is abo diferentabla Consider any pint xR The chal ele allows us to evaluate the M oS derivative matrix ofthe composite funtion with respect to x, Def) by matrix mltpeaion ofthe 1x S derivative matrix of (Das) andthe MN desivatve maton off) erated ao) thats, D/, ‘where = 0) Specialy D, fete) = Dfaes) Da oan) The Product Rule Here we simpy provide few illsations. () Suppo that 2" = R bat the frm f(x) = (2M), where both g(-) and fe) are eavad fantions ofthe N variables x = (+454) 40 hat BY and h: +R). Tha the product rule of cll tls ws that fe) = fx) DM) + Me) Det a2) which, transposing cam also be writen as FCs) = os) VA) + Me) Vote (i) Suppose that FY asthe frm f(s) = as)-Me) where both gC) and -.) ave vector-valued functions which map the N yaabis = (4%) Imo RY. Then fla) = as)-DHs) + Ms)-Da). mas) [Note that hs)Dg(2) = (§(21¥ Da) is a2 mate a the other term i the Fighthand side Thus, the vedor-valued case (MA) implies the sala-valued Formula (M.A2). (Gi) Suppose that f:R-+ RY has the form f(a) = txts), where 9(-) a real-valued fanetion of one variable (ie, R= R) and g: R= RM. Then fx) = ats) Dal) + #00 may 0) Suppose that f: RY —+ RM has the form f(2)= MSA) where hc RY = and g: RY RE, Then fee) = Me) D9) + ot) DH. Otay Note that o(s) is an Meclement vector (ie, an M > 1 matin) and DM a1 matrix. Henes (2) DG) isan Mx 1 mai (of rank I). Observe also that (MLA) Fellows a 2 special ese of (MCAS),M.B Homogeneous Functions and Euler's Formula In this section, we consider functions of N variables, fs nonnegative values (yes) 20 sind for al Detintion M.B.: A function fxy....£9) it homopeneous of degree # (form 1s 0.1, 0) Wor avery ¢> Owe have thy) = fF An {Asan example fy #3) = x,t is homogeneous of degree 210 and fle.) (2p)! is homogeneous of degree one. Note that if ls.) Homogeneous of depree zero and we restit the domain to have x, > 0 then by taking t= 1a, we can wet the funtion f() a8 {0x00 AAD feo Silay, i the function is homogeneous of deptee one then $2) (ed fla- tm rom M.B.: 70%... 44) i homogeneous of 9gre9 for = 160.4, then for any n= t,.-..A the perl derivative lust fy =a) /Bey hhomogeneavs of depres ¢—% Proof: Fix 41> 0. By the definition of homogensty (Definition MLB.) we have $0... .084) = CF oe-089) =O Difleretiating this expresion with respect to 3, Besant) By Definition M B., we conclude that Afr, 40x is homogeneous of degree rks For example, forthe homogeneous of degre one fueton fj. 33) = (21), we have dftey, de, = Kiy/e,9, which i indeed homogeneou of degre tro ‘n accordance with Theorem MLBLL [Note that i f(-) ia homogeneous funtion f any degree then Jon. 44) = Wsigon es Mapes [Oe sep) = fly) fr any > Oba i aia ‘expansion oa evel et of f) gives a new eve set of f(° This has ao intresting Implication: he slopes ofthe level ets off) are unchanged along any ray through the origin. For example suppose that N = 2. Then, assuming that 2/(0/ex 0 the slope ofthe level set containing point & = (ey, £2) at #15 — FYE E/N). 1A tl tf fen J) to he frm [xe RE: f=} ft Home A ai crn it tet pa a by atin ah eer th and the slope of the level set containing poat fort > 0 a 8 apts, Fo afveyieay _ ase IfGidx, PAPER, ~~ AFC ‘An tlustation of thi facts provided in Figure MBL Suppose that /)fshomogeneous of some depres rand that Mis an increasing function of one warble. Then the function WCE...) is elled homothete. [Note that the family of evel sets of H/C) coins withthe family of evel es of J) Theor for any homotheti function i ial tae that the slopes ofthe level {eu are unchanged along rye through the orga ‘key property of homogeneous functions i ive in Theorem M.B2. ‘Theorem M.B2: (Eule's Formula) Suppose tht f(%.....%) #8 homogeneous of on at any By) Proof By definition we have IS. 84) — CFR oon) 0. Difeceniatng this expression with respest (0 «ges 5 ul i flag osB0)20. Evaluating at r= 1 me obtain Euler’ formula For funstion that is homogeneous of degre 2er, Euler's formula says that B eflsy sod : q ret) 200 3 Fur was Nnopncous inionAsan example, ot that forthe fenton f(xy) = x8 me have A/S 53) Emy Uazand Of, #:¥8a, = ~CylEPh and 50 Apr yall Pe ar ae in acondance wih Ese formula, ora function that s homogeneous of degree ove, Euler’ Frm sys that, Oflu osste) z i 120, Sli oBu ae For example, when f(t) = (3) we have 2f(8y a)b6, = HEy/4 " and FiiesniOe Hee onde = 1)" =a)" $559) M.C Concave and Quasiconcave Functions fn this section, we consider functions of W variables fe. domain A thats aconvessbset oF (uch as A = RY oF 4 Wedenote #= (iy). Deteton MLC. The funtion /:A— R, deine an the convex set A & RY is con: ave 34) defied on a ex 20) fox + (1 ~ 9) 2 afte 4 (1 ait onc) for alt x and xe an all (0,1) he dnequality est tor al x anda 1210.1), en wo say Bat he function is sty concave Figure MAG) ilasrate stitly concave fanction of one variable, For this case condition (M C1) sys tat the taight line connecting any two points inthe trap off) es entirely below this paph? Tn Figure MCI), we show a function Frew e4 (8)A say concave fntion (0) A cone ut wo sty cone fection $0 fas 60-99) poh —. snorrd-ana gabe ® Mego are ncn fae Rite [led x Rey fle) wets that is concave but not strictly concave, note that in this case the straight fine ‘connecting points x andes onthe graph ofthe function, that condition (MCI) holds with egy ‘We note that condition (M.C1 ie equivalent tothe semingl stronger property fas! cba zas yer tanset) (MCR) for eny collection of veto x! € 4... 6¢A-and aumbers a, 2 O,....t— 2 0800 {Lets comide apn the oneal cate We cold vew each umber 2 in condton (042) a4 ne “probabig” tha ecu Then conan (M-C2) sus that the va othe ‘cation no mater tha the expect value. deed, encvefnetion 7: Rit {srs free owes Iorany dseotion ection (0 1) Condition (M.C3)ieksownas Jensen. “The properties ofconexity and atric content fora function (+) ae defined salogouly but withthe equality in (ML.C.1 reversed. In particu, fra sity ‘convex function f(a straight line connecting any two points in its graph should licentirelyabote ite graph, as shown in Figute M.C2. Note alo that f(-) i coneave ‘and ony if ~ (>) i conver “Theorem MC provides 4 wtefulaernative characterization of conevity end ‘Mnsorem M.C.1: The (cominuousy dite envi (able) funtion: -+ Ria concave it and feta ste) + Ware cay for al ne and 22 RY (with + 264). The function 1) I strety concave it inegulity (M64) hold sity fr alle A ang all? #0 ewe wc ‘seal comvesfy 10, Proof, We arge ony the necessity of condition (MLC) fr concave functions. For all (0,1), the condition ea’ + (I ~3)x) 2 2f(x) + (0 ~ aif) forall xx’ A ‘an be reweten (think of = x" x) a8 fora) ~ fs) Sete fee for al xe 4, ZR (with x4 26 4), and e6 (0,1). Taking the limit ae #0, we conclude that condition (MC) mast hold for s (continuously difeentiale) concave funtion J) Condition (M.C4) is shown graphically in Figure MC3. It says that any tangent 1 the graph ofa concave fnetion J[-) mt le (weakly) above the graph off ‘The corresponding characterization of convex and sscly convex functions simpy eal reversing the direction ofthe inequality in condition (MC), that i, | conves function is characterized by the condition that fix +2) » fla) + Ufa)? for all eA and 26 RY (wth x4 26 4). We nest develop a third chirsceraation of concave and strictly concave functions. lon M.E.2: The Mx N matrix Mis negtive semideinit eae so mos) forall € RH he Inequality is ait or all 0, hen the matric M is negative Aetnite. Reversing the inequalties In eondivon (M8). we got te concepts ot Dosive semidelinte ans postive definite matrices, We rele to Section MLE for farther details on thet properties of matrices. Here ve put on ecord thei intimate connection with the proper ofthe Hersam matics DPJ() of concave unctions* 4. For hesens MC2, M3. and MCA, he 4 ase ob ape Satin MF) green ‘nee Sitio hao raphe” sm MC. The (twice continuously ifereniable) futon f: =» Ris concave if and only i O°7e 1s negative somidetnte for every x6 A. H D7 Is negative etre or every se 4 than the function le sty concave, Proof: We seg oly necesiy Suppose that (-) i concave, Consider a fied A and a direction ofdsplacement fom x, 26 "with: # 0. Taking Taylor expansion ‘ofthe function gta) = f(x + a2), where €R, around the point x = 0 gives, fee 22) ~ Fos) Vfeey(e) Sei + ile for some ft 0,0) By Theorem M.C the ethand sie ofthe above expresion ie onposine. Therefore, r-D8/(x + fa)2 $0. Since, heoce B, canbe taken to be arbitrary small thi gives the contusion -D*/(x)2 0. Inthe spsil ease in which N= 1 so f(-) i 8 function of singe variabe), negative semietiiteness of D2/(x) amounis to the condition that €8/(/dx* = 0 whereas with negative detniteness we bve d8f(eée? <0 (lose this note that, (hen 2=D*/la)s = 24(42/(xide?). Theorem M.C2 tells us that in this ease Jt is concave if and only faye <0 forall x, and that if @/(a)dx? <0 for al, then J) is strict concave: Note that Theorem M.C2 doesnot ser that negative definteness of D2/(x) must old whenever J) i sell coneave. Indeed thi is not ue: For example, when N = the fancion f(x) = ~¥* fe sietly concave, but a soyes? =0 For convex and stil convex functions the analogous reel o Theorem M.C2 hols by meely replacing the word “neative” with "peiive.” Te remainder ofthis sections devoted to diseusion of guaicosave and rity ‘auasiconcavefoetions. Dolintion M.C.3: The funcion /:A +, detined on the convex est ACR. ‘quasconcave Is upper contour sels [xe f(s) >t) are convex sete tat fa Yo) 2 tand ie) Zt implies hat fax +a ze LCS) for any Ce, x x'€A, and z6[0, 1)! i the conciasing inequality in (MC) | srict whenever x # x” and #6 (0,1), then we say that (>) ls set quar Analogously, we sy that he fonction f(-) is quascnte if it ower contour sets se cones; that isi fx) and fest implies that flex + (1 ~ 2}x) = for any 1€R, x, x°€4, and ee, I} For strict quasiconvexiy, the Sal inequality rust hod tity whenever x #2” and x6 (0,1). Note that f(x quasconeave and only if the faction ~ f(s quaticonve. “The level sets ofa sirelyquasconcave fonction are ustatedin Figure M.C-Kahsien wana eran) f=) cs re » » in Figure MCA) we show a function that i quasconeve, but not sti ussiconcave Te follow fom Derition M.C3 that (is qusiconcae if ad only ‘Sta + (0 ~ 2)x) 2 Mi (fo) S09} cn for all x2" A and xe (0.1). From thi, oF dielly from (MCE), we see that 3 coneave funtion i automatically quaiconcane. The converse i not true: For “rumple ony increasing function of one variable is qusioncave Thus, concavity is uonger property that quasiconcavity. It ako stonger in diferent sone oncaviy i a “erdinal” property i that it will ot generally be preserved under ‘increasing transformation of f(°. Quasiconcaiy in cons, wll be preserved ‘Theorems M3 and MCA are the quasconcave counterparts of Theorems MCi and M.C2, respectively ‘Theorem M0. The (continuously dierentabe) function fA ~ Mis quasiconceve ana only it Dn 20 wherever Me) =e) ce, loc of 2/6 A.M Pf) —#) > 0 whenever fc) 2 fe and x # x then fC) 8 tie guesiconcave tho oer éiection, 1 /() = sty quasiconeave and ‘ita tor all ne A hen V(x" = x)> 0 whanever fe) Ms) and x Pret: Aes, we egue only the nests of (M.CS) for quasconcae functions. If le)» fs) aad (0,1 then, sing condition (MC, we have tat flats’ =») +9. x0. Taking the limit a x +0, we get B/te)(e — 3) 20, "The need forthe condition “W(x # Ofrallx Ain the ast part ofthe theorems ‘nitrated bythe function f(s) =? for xe RTs oneion istry quasiconeave (Check this sng the eteron in Defiition M.C3), but beau W/(0) =O we have flare a) =O whenever x= 0. ‘Theorem M.C3% characterization of quasiconcave functions is ilusrated in gue MCS. The content of the theorem’ condition (MCS) is that for any tquaniconcvefaneon f() and any pit of points = and x’ with f(x) 2 Sta) the fadient sector @/ts) andthe vector (2° — x) must form an acute ange (@) Te ea ot Sty gusoone (By Thee of fuaeoneve fence epee jon) 540) Pee wes m Condon (MCB. For « quasiconex funtion, we revere the direction of both inequalities in ones) ‘Theorem M.C4: The (ice continuously diferantiable) function fA — R is quasi onceve ii and only Hi or every x€ A, he Hessian matrix D's) is negative Semiceinte inthe subspace (ge R":/te)2 =O}, that tf and only OMahe $0 whenever Vib)? =0 once) lan mate OY) negative dain inthe subspace ery 46, then fs sly quasiconcave, for vey xe AS tne (rem orpe-2 =O} tor root: Necesty (atin, we limit oureives fo tht) can be argued exactly as for ‘Theotem MC2 The ony adjstment that we eset tbe sueh that VC) = = and we rion to Theorem MC3 instead of Theorem M.CL. Fora quasicomex fenton, we replace the word negative” with “postive” every sere inthe statement of Theorem MLC M.D Matrices: Negative (Semi)Definiteness and Other Properties tn this secon we gather various fl as abou matics Detnion Mt: The AN max Ms negate semisetnt rMes® mon for alt ze RY the inequality is arictfor az #0, then the matrix MIs negative “finite, Reversing the Inequalities in cordon (MLD.), we get the concepts of bositive semidefinte and postive dente maties. [Note that a matrix M i postive semidefit (especialy, postive definite) Cand only if the matin —M is repativesemideiite (respectively, negative deft) Rec that for an N = N matit M the complex number 4 isa characteristic cule or eigen or rot it aalves he equation [M ~ 2] = 0. The characteristic Cafes of symmetric mates ae always real (Se Sesion ALE for 8 Gas te proprio ch mins6 Theorem MD.1: Suppo at Mis an A Nate (i) The mavix is negative define and oaly i te symmetre mati MM is negative stint, (1M is symmetric, thon BM i negative datinte and only Hal of the characteristic values of M are negative. (iy The matrix is negative deine I ane only i "Is negative dette, (iy lttne mai Mis nogative detinte, en forall glagonal Nx W matrices ‘with postive dtagonalenvies the matrix KM Is sable” root, Part simpy follows fom the observation that (8 + A every eR ‘The logic of part (i) isthe folowing Any symmetic matrix M canbe diagoralied ina simple mance: There ean N x N matic of ll ank C having C" = Cand such that CMCT is a diagonal matric with the diagonal eaties equal to the ‘haracteritic aloes of M But then 2+ Ms = (Ce)-CMCY(C2) and for evety #¢R™ there is az such that #= Ce Thus, the matrix M i negative deft and only if the diagonal matrix CMC is. But itis steaigorward to vey that » diagonal ‘matrix is negative definite iad only if everyone os diagonal entries i eesti Par i: Suppose that M”" is negative daiite and lt = # 0. Then =-Mz = (eM) = 28 = (MT) MMS Part iv: eis knowa that «mates i stable i and only if theresa symm Positive definite matrix E such that EA is negative definite Thug jn our ease we can take A= KM and B= Kw 2eMs for For potive definite matrices, we can simply revere the words “positive” and “negatve™ wherever they appear in Theorem MD. (Our next result (Theorem M.D.2) provides a determinant text for negative etniteness or negative Semeiniteness ofa mattis M. Given any Tx S matt M, we denote by (Mf the 33 submatrix of M where ony the fs 137 tows se retained. Atalogouly, we let M, be the Tx submatrix of M where the firs 4s § columns are retained, and we let M, be the & x x submatrix of M where only the frst T tows ands columas ate retained. Als, if Mis an N = N matin ‘en for any permutation ofthe indzes(1,...,N] we denote by M* the matin im which rows and columns are catespondingly permed. ‘Theorem M.D2: Let M be an W x W mat (0 Suppose nat M is symmavie. Then M is negative dtinite Hand ony (Cava > 0 or every "N. (i) Suppose that fs symmmette. Then Me nagatve emidetinit I and ony N(AYUMGL 2 Ofor every r= 1... .N andlor every permutation ol the Inaies (.-.W) i) Suppose that it Is negative dette (not necessary symmetric). Then (AYUMe| > 0 for evary r= ,...4V and lor every permutation fof the Inaiees (1,200) ig che a rea Th ely art tor ay ia ‘aes ie somitan sphere abel yng oe aed corona sso) Proof) The necessity partis simple. Note that by the defaion of negative efnieness we have that evry ,M, i negative definite, Thus, by Theorem M.D.1, the characteristic values of -M, are negate. Th determinant of a square matic it ‘equal to the product of ite characterise values, Hens, 8 bas he sgn of (—1Y “The suiciency part requires some computation, which we shall not cary OBL Ii ‘ery easy to ses forthe cae N= 2 [the conclusion of () olds for a 2x 2 symmetric mate, then the determinant i positive and otk diagonl entries are negative he combination of these two fc i well Krown to imply the negativity ofthe two character values), For (i), we simply note the requirement to consider all permutations. For cxarpl i Mis a matee with al eter equal to eo except the NN ently, which is positive, then Mf satsies the nonnegative version of ) but it is ot negative Semideinite according to Definition M.D. [Notice that in part (i) we only daim neces of the determinsnal condition In fat for noneymmezic mates the condition ino suficent @ ample MLD.t: Consider real-valued fntion of tno variables, sy.) I wat folows, we let subscripts denote part derivative, for example 6s) = 2 f(sy 82/Ox, Oxy. Theoren M.C2 tells us that J) sly concave sonnets ornened [Feed fa is negative definite fr all (4,44). According to Theorem M.D2, his ise i and only als xs <0 and [atau Saban. fiers anaes or equivalent, i and ony i fulnss) <9 on Subs ane ea)~ Gab A 0 “Theorem M.C2 ao tells hat 0) concave Hand onl Ds) sepaive serene foal 53) Teste MD elu hat the ec ind only Ystsnss) flrs Vasenss) fatal nd, pormtng the tows and cols of Ds, 3) Jeo. 20, Uutenshs0 and Visteroral's0 and ‘Thus, /- is conewve if and only if Slew) £0, Sales) $0, and Silo sails ts) Uialsu a 20. .‘A siiar tet is avaiable for postive definite and semidefite mates: The ren fortes matin pra eondtons (fi) of Theorem M.D2, but omit the ator (—17 ‘reeorem MDS: Let M bean Wx N symmatte matrix and et B be an Nx Sat wit SW and rank equal 6S. 10) Mis negative dotnite on (26 RY: 8 win Be = O and? 0) f and enlyt (ie, Me <0 for any Ze R™ Ml. a forrest tN (iy Mt ts negative somidainns on (26:82 =0) (Le, 2M $0 for any Ze wih Be = 0 and 2 #0) it and ony it m8 Kayo ocr = $4 1,---.N and and every permutation x, where is he matri formas by permating only the rows of the max 8 eccordng 10 the Dermutton « UM; i.e before, a matrix formed by permusting Both the tows and columns of) Proof We wil no pove this result, Note that i paral o prt @) and (i) of ‘Theorem MD2 withthe bordered matix here playing a roe similar to the mati there = cn 20 Example M.D.2: Suppose we Ive faretion of wo variables, f(x, 3). We asrume tbat O72) # Ofor every = Theorem M.CA lis us hat (sty quasioncave if the Haan mati Dla) eptve ite inthe sabepace (re RE Va) = 0) for every rm (ey x) By Theorem MDS the late stv if and only if Viatsnes) Fakes) Aw Mutts) fubeis) Aber > flew) flew) — 0 oc equivalently ifand only 2h bxwn dfn salen ¥0)— Ulex absurd ~ Lauda we appythirtest to fe) = 0% we et Depts > O confirming hat he Function Isatrily quavconenve By Theorem Mca, f() i quasconcave if and only if the Hesinn matrix Discs) mgntive emideite i the eubypace {2 € RP: Vf(e)-= =O} for every = (ea) By Theorem M.D3 ths true sf and only i [ftrinne) Sabin) fibers] Mutsits) Suber) Abel] 20 View) fhewnd 0 9 Rech pve eine and ony i =e este Moree, a= and (pecorming the appropiate permutations) [FxGened Sales) lows) foseX2) Favs) fle) 20. Liew) flew) 0 Computing these wo determinants gives ws the necessary and sufent condition Blanes XV ta) — ls fl 8s) Us XS 3) 20. To characterize matsces that are postive defiite or postive miei onthe subspace {2 € 8" Be = 0) we need only alter Theorem M.D. by replacing the term Ctr it (=F “teotem M4: Suppose that M is an AX N mati and that for some p 0 we have Mp0 and Mp0. Denote T,= (reR™:pr2=0} and let M be the (Wt) x (WT) matre obtained trom M By deleting ene fw and the core (i) Wank Mt= 9 ~ 4, tnen rank A= W = i tee 0 for alize J, wit 220 (i, H Mis negative éefinite on T,) then zfs <0 for any £6 RY nat proporional tp. (i The matrix Ais negative dtinte on Ty andony i is negative definite Proof @) Suppose that rank M-< N ~ 1, thai = 0 for some #e RY with 220, Complete # to a vector 2 eR" by letting the value ofthe missing coordinate ‘aero Then we have that, fist nearly independent of p (eal that p 2 0) hd. second, Mz~ 0 and Mp =0. Thus rank M-2N—t, which contradicts the hypothesis, “i) Take a 2€ RY not proportions op. Fors, = (p's) (pp) and 2° = 2 ~ 5 vnc have e¥ eT, and 2" #0 Because Mp = Mp = 0, we have then + ayp)eMUet + app) = 2PM <0, (Gi Tis sitar to pare fact, part Gi ret implies that is aeative efinite iM i negative definite on T, (because for any 26R™!, £F1E = 2M, lnhere hs ben completed from # by placing 220i the ising coordinate, and if 20 this + by consruetion not proportional te p, For the converse, let n Senate the row and column dropped from MT to obuin M. I for every 2'e 7, with #40 we kt e=2'—(u/p)p then zy =0 and 2 #0 [iz were equal (0 ero, then we would have 2” = G/Pep i contadision to z-p = 0), Moreves, Pie welts = M8 20. Me Detntion M..2: The N x N matrix M witn generic entry ay has a dominant agora! Grinerets (Pyne sby) 0 such that, or every f= ts Bel > Zyl Detinton M.D: The Wx N matt M has the gross subsite sigm pattern i Iondiagonal enty is pastve. ory ‘Mneorem M.D: Suppose that Mis an Wx W mas Ui 1 M1 nas dominant ciagona, then ts nonsingular. {hy Suppose that Mis symmetric. IM has a negative and dominant ‘agonal then iis nopatve definiteME (ii) 1. nas the gross subsite sign pattern andi for some p » 0 we have ‘Mp <0 and Mp «0, hen M is negative definite (0) 1UAt nas the grove subetie sgn patern and we have Mp = Mp ‘or some p> 0, then Ms negate cetnite, where Mls any (W ~ 1) (WV ~ 1) matrix stained tom My deleting & Yow and the corresponding column (01 Suppose that at nvies of M are nonnegative and that Me «2 for is a productive input-output math). Then tha matrix exist fact = MJ = SE a (i) Assume, for simplicity that p= (1,1, Suppose, by may of contradiction, (© for #0. Choose coordinate m nach that Ir fe! for every ater lsh were ay the ener entry Of M. Hence, we cansat have 32, = 0, and v0 Mz 4 0. Contradiction, (ip IF has a negative dominant ciagonl then #0 doc the matrix M ~ a for any value 2 0. enc, by (i) we have (PIM ~ afl 0. Now iis very large We lear that (1PIA¢~ all> 0 ince (=1)FIM ~ alm (—1)"24 (2) — 1 and |=11=(~1)"). Moreover, since (—1)FIM— all is continuous in and (1M — al 40 for all> 0, ti tells ut that (IM ~ all> 0 forall a 0 ence, (~1)"Af > 0 By the same argument, (— 1/1 > O for all r. So, i M is ko symmetic thea by part () of Theorem M.D.2 itis negative deft (i) The stated conditions ily that M+ MT has a negative and dominant siagonal (in paticular, note that Mp «0 and Mp0 implies that 9,24) < Ee e+ 4y) for all where ai the generic entry of M). Bacae, by the ros substi property a, > Ofori this ies wn, (a) > Tyee Blan + 2 for alm. Hence, the eonclsion follows rom parti ofthis theorem and pat (Df ‘Theorem MDA (Gi) If satisfies the coditon of), then the fact hat M has the gross subtitle sien pater implies that Mf docs as well and that Kp «< O and Mp0. Hence, 51 "tse the conditions of (i) ad is therefore negative definite (9) This result was already proved inthe Appendix to Chaper (ee the proof of Proposition SAA.) that Mt oordinten, Then ai > Eyen loyal 2 Ey, The Implicit Function Theorem The sting forthe implicit fnction theorem IFT) i as follows, We have a system of N equations depending on NW endogenous variables xm (ry.--s34) and M parameters 4 Sis yn ea men Inte ooe By eie) 0 “The domain ofthe endogenous variblest A & RY and the domain ofthe parameters ieperte a. atone ae Aad epi Sin MF at a Downy Suppose that B= yoo Sy)EA and G= Gyo nsed) satisfy equations (OE 1) That i ft) 0 for every n Weare thea interested inthe posbiity of Solving for x= Gsissr%y) 842 fonction of = (@e--. 0) fely around @ and Formally, we sy that a set Ae an open neighborhood of a point xe RY Aen we R™ fe ale) for some sear +> 0. An open neighborhood B of point ¢€ RY is defined in the same way. Deliniion MLE: Suppose that = fy. Ay) €A and & = (0s ‘ho eavation (MMe 1), We say that wo can focal solve equations (OME) at Tor bs sssty) a8 function of @ = (ty... -dy) # tere ate open neighbor. ods ACA and Bc B, otf and d, renpectvely and N uniquely determined imple fonetionsm(-}----- ny) fom B"10.A° ch that falta. -stn(@ia) © for every qe and every, and tal) =i, tor every In Figure MLE. we represen forthe case where N = M = |, tution in whieh the system of equations ean be locally solved around a given soto, ‘The implict faction theorem gies a ufent condition forthe existence of such implicit fonctions and tel us the Brstotder comparative stats eet of 4 00 x at st soltion tnvoram WE (np Functon Thee) Suppose tal evry eunn 6) ries froma’ wh tae Ns Marae td hal ne ence yee hg eprantvlae@ lyf bal ine on ier Caryn these ma ese wh aaa sess vr, tne rt etenongaa et 2a) ahead) or, ae 0 mea) ert.a) atta 2 Be then te system can be locally solved at (fg) by Impley defined functions TB > A’ tha are continuously eilerenlable. Moreover. the rtorder affects ‘txaly sable fee Gitegask etn)of qon at 6) are given by Dyn) = (DME 81)"*D4M 8 (es) root: A proof af the existence ofthe implicit functions: BY ~ Ais too techie for this appendiy, but its common-sent loge i exty to gasp, Expresion (MED), {ul rank condition, tll us tht we ean move the values ofthe system of equations ‘in any diecton by appropriate changes ofthe endogenous vaiabes. Therefor, i ‘here sa shock tothe parameters and the vals of the equation system ate pushed aay from 20, then we can adjust the endogenous variables 4 a8 (0 restore the “Sui Nom: ive a system of implicit fonctions na) = (gh. Mal) defined on some neighbornoad of, 4), the frtorder comparative atic eects (4 are realy determined Let f(54) = (f(s JC a Soe we have feahar= 0 fraileeB, sxe cam apply the chin rule of clelu 1 obain D,f15 ADM) + BIB: =. Because of (ME), the N x matix D/C sinvertble, and so we can conelude ‘at Dyn) = ~(0,/08: ABE [Note that when A= Mom (the ca of one endogenous variable and one parameter), (ME) reduces othe simple expression dna) _ _eftscaiea a” afeaee ‘The special case of the implici function theorem where M = N andevery equation ts the om fa) = gle) ~ a= 0 ie known the nsere fanction theorem How rei i condom (ME2)? Not vty. In Figure MLE we dept ation see iso ol [By conte in igre MEI condo (4.2) ete] However The ange dplyed in Figure MLE appears pathologist would te removed by 23) tral perrbaton fhe fenson J") “Am inorat vl he monet rm, makes hc especie by ase tha under a weak conden (enagh hstrde sanbity of J") wih rrp te a). (MLE) bid gency he preter We pee pininaryconep in Defnion sa) Condon M2) Siow ate reton a) Detnlon M.E2: Given open sets A= RY and 8 Re eontnuoul trail) sat ‘ht enntions 4) = clined an A ie opus Ge 1 MED) Resa ary soon» Ihatia fg) =O impos a/c Oc \Wih his definition we then ave Theres ME2. Theorem ME2:(Teanevraly Theorem) Suppose tat we ae gin open sete Ac RY ‘ind Bc RY anda conteunuely aiorentae) ncon A» B= RSI: ats The «(WE An mate OF 9] Ma an warover = 2 then the sytem of auations a W urtaewns (0) = 6 repula for aimee every eo" M.F Continuous Functions and Compact Sets In this section, we begin by formally defining tbe conecpt ofa continuous function, We then develop the notion ofa compact st (ae along the way, the notions of ‘open and closed ets Finally, we dacs some properties of coalauous functions tt vlc to compact set. "Asequence in R"asigs o every pie integer m= 1,2, veer x76 We denote the sequence by {x")227 oF simply, By "] or even x” Definion ME: The sequence (x") converges to x6 RM. writen 88 lit. 1° for xe. tor every #0 there san integer M, such that a" — a Mf. The point xis then eit to Be the limit point (or simply he Tit ot sequenes (2) In words: The sequence (4*} converges to xif<" approaches x arbitrarily closely Dotintion M2 Consider a domain X = RY. A unetin 2X + Ris continuous it for ‘Bisex and every sequence x" + (having 76% tor all). we have: Ter) Fa) A fonction 12% -+ RE ie continoous Ht every coordinate function f) tn words function i continuous when we take a sequence of point x! 3% converging 19% the correxponding Sequence of fonction values f(s). 6 Convers oes [titel a fanetion fa fo be continuous iit diplays aor ints value at some point = Examples of continuous and discontinvous ferctions eine om (0,1) ae lusteated in Figure MF "We next develop the notions of open, closed nd compact sts Detiniton MLE: Fix a set XY. We say hata set A= X Is open (oatve to X) ior every x64 thee i ane > Osueh that 2] Os ‘called an oper bal areund x. With this notion, the ides ofan open se ean be put follows: Suppose that the univese of possible vectors in RY ie XA set Ae i ‘pen (relative to X) i for evry point xi 4, thee i an open ball around » all of whose elements (in) ae elements ofA. In Figure MF) the hatched set i ‘pen (eave to X). Inthe figure, we depict a ypc point xe 4 and a shaded ‘open ball around tht lis within A; poisson the dashed curve do not belong to 4: In contest, the hatched set in Figure M.F2() i closed because the set X14 | ope: note how there isan open bal around the point xe X'\A that is eniely within 2° Gin the figure, the points on the inner sald curve belong to), “Thoorem MF gathers some bate farts sbout open and closed Sts ‘Theorem MFI: Fixa setX.c R™ In what follows, al the open and closed sets are relative fox (0) The union et any number, nite oF intr, of open sets is open. The intersection ofa tnte number of open sett open, (i) The intersection of any number, tint o init, ot losed set is elose. ‘The union ofa tnte numberof closed sets s closed (i) A S004 © Xs closed and only for every sequence x" -+ eX, with AeA tor allm, weave red Property (i) of Theorem MCF. i noteworthy because i gives us dtect way fo characterize a closed se a set is led if and oly the init point ofan) sequence whose members are al elements of ie lf an element of. Points i 2X) that ae the limits of equences whose members ae all element ofthe se A ate own athe tin points of . Thus, property (i) says that ase is dosed i and Pewee only i i eontins al of limit point Sontingus ad Given © X, the meio of A (eative to X) is he open set? feretons Ing A= (ce Asthere is ¢> O such that [x ~ xf Lx) or every x" eX. (eemtiveto Past Gof Theorem M.F.2 asserts that any contiouousfncion f+ -» R defined fon compact et X attains @ mani, We ilsrate this elf Fire M.A ‘maximum i at atained either in Figure MF (a) or in Figure M.E-X®) In Figure MFG), the foretion is continuous, but the domain is not compact. In Figue [MF-3(O) the domain i compact, but the function not coninwcus Given a equese (<").supor that we havea wt incetng anton ml tha signs tosh postive meer Ex postive integer mf. Then the seus "= (writen (Weald 3 sabuqune of 2°] That (2) compo of (Ode jeg) ot of he sequence 1°) Foe ear the sequence (x 12,416 2596 te ve subseuenr af fe" i A 168, anther e286 38 96, ‘Theorem M2: Suepoee na the ast Ac is compact (0 Every sequence [x7] wit x"¢A tor all nas a convergent subeaquece Spactcaty ere a subsequence (x) ote seguene "tat ha 8 Im. atis a pom xe sen nano ( Hinacsiiontobeing compact A Is ao crete, mati allie ont arn Llomaty, tr evry 404 tere > 0 sich Pal me whenever We A an bent <0 hen Ai hae tows ihipragrph at open and doe ae onc sa seoKR rean M.G Convex Sets and Separating Hyperplanes In this section, we review some baie properties of comex set including the important separating hyperplane tbecrems. Defintion M.G.: The set A = RM ie conver ex 4 (I~ ale whenever n xe A fonda e[0.1)"" In words Astin Rf conven i whenever it contains two vectors x and x it also contains the entire spent sonnecting ther In Figure M.G. 1a), we depict Conve set. The st in Figure MG.1() i ot conve. ‘Note that fora concate uncion fA ~ Rte set (2. He R18 flehz€ A) is comer. Note ao thatthe interstion af any number of convex ses is conve, bot be union of conve set eed not be convex Definion MLG.2: Givon a set 8 < RY the convex hul of B, denoted CoB. s the ‘Smallest convex st containing 8 nat the Intersection of al convex sets that conan 8, Figure M.G2 representa set and its convex ull. Is not ficult verify that the conven hull ean ls be deserted a the sto al posible convex combinations of lemens ofthat, and some (2, capr0ui fae} Detinton N.G.: The vector xe ie an extreme point ofthe conver set = R*H (anmot be expressed as = ay + (1 a)e or any y-2€2 and c€ 1) 1a Thess ily cones an 9 (1)! an leet fhe ea fA when sated et oe Sson ME fers etn femora Inde te Simgectes Sinan te (Gk eartinaoue Aeneon with ao (8) dooniooue weeiene we tl-ay o o ore Pansat k= faded ‘The exis points ofthe convex set epresened in Figure M.G. are the four [Avery important result ofconveity theory i contained in Theorem MG. ‘neorem M.G.1; Suppose that 8 < RY Isa convex set that i also compact (tet I ‘Scion ME}, Then every re can be expressed as & reat The proot is too technical to be given here. Note simply thatthe rel is Correct forthe conves set in Figure M.G3- Any point belongs to the triangle spanned by some clleton of thee comers. ‘We now tutn tothe development ofthe separating hyperplane theorems Detinton MG. Given pERY with p40, and CER, the hyperplane generated iby o and is the a6t Hy. = (ee R" perme). The sets (ze p°z> ¢} and (rem pre-e c] are caled, respectvey, the hall-spece above and the hal soace below the hyperplane Hi, Hypeelane ad halfspaces are comer sets, Figure M.G.4 provides istration. (ara cones st (BA nono set awe ea rere aHaga stove Mats bebe tg, ‘Teerum Mz: (Seping Hype Teron) Supa at Oc Rico and cased soa Secon for acacusion loved st) and tat rf, Te inere is p eR with p #0, and a value CER such that p-x > ¢ and p-) Bree on at py celo More gover, supose that Ager conven sas A.B RY av dont (ie ANB = 2), Then there is pe RY with p #0, and a value ce R, con eaia'ns © for very x24 and pry sft every 68. Tat vlna ype tat reparaas 4 and 8 owing A ano 8 on eiterent let att, ont We dca ch ft pr he pone i ad on comes) a Fate MGS we pte alot come Bad We sho indtte by yeB te pt nse B coset wc Wee ke and <= py, we can then see, first, that p-x >’ [since pox ~ ¢ ne poy: a =n“ 9)= te =P >a) an soe a fry Fete es ed £77 snot me an tue ate at epee =))epe eee Fale ke e2C hehe > ham ens forpivoe 4ea ena s ‘Theorem M.G.: (Supporting Hyperplane Theorem) Suppose tat B < Ris convex fan that xis rot an element ofthe Inter of set & (ue, xg Int eee Section ppt nd IME torte concept ofthe interior ofa set). Thon thore is pe” with p # 0 such tales thet pre 2 poy Tor every 78. root, Suppose thats Int B. The following argument can be followed in Figure M.G6 It vtutive that me can finda sequence x™ +x such that fo all ms not an elma ofthe closure of set B (ie, x" C1 Be Seton M.F for a discussion Ot sequences and the closure of 4 se) By the separating Ryperplane thre (Thcotem M G2} fr each m there tea p" #Oand ac" Ruch that petoearty mG. for cvery ye 8. Without loss of generality we can suppose that 1p} = Ifo every In. Ths,extocting a subsequence I ecesary (ee the small ype dicusion at the Prue as ‘hd of Section MF), we can ansume that there sp #O and cM such that p ~ p The separating fn e* ~ e Hence, taking limits in (MG), we ave pean en, aes forcvery yoo. = Final for he important concept ofthe support action ofa se ants properties ve eler to Section MP af the tex. M.H Correspondences It common in economics to retort 0 a generalized concept ofa function called & coresponience Definiton MH. Given a set A= RY, a covespondence A + RF is a rule that ‘assigns a aet xj © RE To every re A [Note tat whe, for every x A, J() i composed of pei one element, then “ft )ean te vowed ass Tunstion in the uaa fente. Note ao thatthe definition Sows for f(a) = but typcly we consider oly corepondeness with JO) # forever xe, Filly if for some set Ye R® we have f(s) = ¥ for every xe 4, we indicate this by 2.4 ¥. ‘We now proseed to dicurt continuity nosions for eorespondences. Given AY and YeRK, the graph of the correspondence JoA-+ Y is the st teed Pye fea). Definition MAM2: Given Ac RY ang the closed set Y= RY, the correspondance {A= Vhas a claced graph W lor any two sequences x —+ x6. and Y" ‘nit xe ane ye le") fr every m, we have Ye ewe woe Braepo Noe tht the concept of a closed graphs simply our usual notion of closedness (clave 10 4x) api to the set {lx eA ® Y= ye fe) (ee Section MF). Detniton M43: Givon AC RY and the closed set Y= RF, the correspondence THA» Vis voper hemicontinuout (une) 1 Wthas@ closed graph andthe images fof compact sets ave bounded. that i, for every compact set B= A the set a) ive Ys yetia or some we 8} Is bounded.” In many appeations the range space Y of f(-) is se compact. In that case, sn upper hemtontnuty property rede othe ose graph condition In Figure Mila me representa corespondeace (nf, a function) having coved graph that nor upper hemigontinuou. In eontrat, the corespondence represented In Fwre MEH.) is epperRemicontiauous. "The wppes hemicontnsty property fr correspondences can be thought of 353 aturlgenralzation a the maton of continuity fr fonctions Indeed, we have che ‘eel of Theorem MHL Theorem MALA: Given A.C RY and the closed aet YC RE, suppose that Hh Figure MH.) epesents a Tower hemicontinuous correspondence ™ Observe thatthe correspondence i not upper hemicontnuous—it doesnot have a closed praph Simi, the corespondence represeied in Figure M.H2(6) is upper Femicontinuous but i fis to be lover hemicomnuous (consider the illustrated Sequence 1" + that approaches x Irom below and the point y« f(x). Rough Speaking, upper hemicontinsty i compatbe oaly with “discontinuities” that Sppese as “explosions” of seis (ar at x=4 in Figure MH.2()), while lover emcontniy is compatible only with “plsins” of sts [as atx = in Figure MH) 'As with upper hemicntinvouscorespondenes, iff) i a fancion then the concepts of loer hemicolinity ar eorrerpondeace and of continuity 253 function seine ‘inl, when a correspondence i both upper and lower hemicontinocu, we sy ‘ati cominuous An example is iustated in Figure MH. ny coesondese fo Yt an ope pre amt ove ae Semeominacus eon Sarees) ast00 ay portal) MLI Fixed Point Theorems 4 economics the mos frequent technique fr establishing the ensence of solutions to an euirium sjstem of equations consis of eting up the problem asthe search fora fixed point ofa suitably constructed fanton or corespondence f= A — A trom some set A RY ino itsell A vector x6 4 is a fed point of f(-) iF x~ fs) Lor in the correspondence cas, xf}, Thai the vector is mapped into ise and so i remains “ted.” The reason for proceeding in thi, olen roundabout, way is that important mathematical theorems for proving the existence of fixed pints ae readily valable ‘The most basic and wellknown result statin Theorem MLL ‘Treorem MAL: (Brovwers Fined Point Theorem) Suppose that A c Ris a nonempy, ‘compact, conven set, and that ~ isa continuous function tom Aino sl. ‘Then (} has a fixed point that i, ere ie an £4 such that x= 7, “The logic of Brouwer fixed point toot i israted in Figure MALMG) for the easy case whete N= and = [0,1 In this cas, the theorem says tha the ‘graph of any contauous function from the ilrva (Oi into itself must toss the iagonal. and is then a simple consequence of the inermediate vale theren. a (6) comumss ea ieat y~ 0) Tee conaiy Indspenatle / wep pacar, i we define the continuous funtion $e) = fle) ~ x then #0) > 0 and (1) 0, and so 6) = O for some xo [01 hence, fs) = x fr some x [0,1]. In Figure MLi(b) we can see that, indeed th continuity of fe require. As fo he ‘convenity of the domain, consider the funcion dened by « O-dgree clockwise rotation on the cicle = [xe RP [xf = 1}: I1s a cotinuousfncion with no Bed Point The st S, however, i: po cones Te applications, fen the cae tat the following extension of Brouwer xed point theorem to correpondence is mart ut ‘Teeotem M.L2(Kakuton's Fixed Point Theorem) Suppose tat «fis @nonemphy, ‘compact. convex set anginal ~ Ais an upper hemconLnuouscorespandoncs tor A into set with the property tha he sete] =A fe nonempy and conven for every x64. Then) has fixed point thats, here ean xe A Buen that rela The logic of Kakutans fied pint shore i usrated in Figure M.12() for NN = 1, Note tht the conveniy ofthe st f() for al xs indispensabe, Without his condition we coud have cases suchas tha in Figure MLL) where no fed point Finally, we mention Gxed point theorem that eof «diferent tle but that i bing ound of nereasngclevance to economic appbeations. ‘Theorem Mi: (Tavshy'sFized Point Theorem) Suppose that (0, 1]¥ = (0,1 Iondeereasing uncon, that, fe) = fl) whenever’ > x Then 7} has a tted point ati, there ig an we such tat x = Mn, Tessky’s theorem difere from Brouwer’ in thee respects, Fist, the base st is not any compact, convex set, but rather a special one—an Nproduct of intervals. Second, the function is required o be noadecrestng, Third, te function is not required to be continuous The logis of Tasks xed point theorem it iherated in Figure M.L3 for the ease H = 1 Inte figure the fenton J) 8 wot continuous. Yet the fal that iis nondecreasing forces ie graph to interact the iagoral (a) Aiet pistexse, enM.J Unconstrained Maximization In his section we consider a fanetion J: — R Intlon Malt: The vector Ze RY i a local maximizr of M) tere isan open Ieighoorhod of J, A © RY, such that ff) > 0) for every x€A5" WH) 2 Un for every eR {Le Hl we can taka A= R), thon we say that 5 & a global Imanimizer ef /-) (or imply @ manner). The concept of loca! and 9i0be! ‘rinmizers are defined analogous In Figure M1, we lustrate local maximize & and local misiizer x (vith open eeighbothoods A and 4s respectively) of function fr the ease in which mM: Suppose at) i cleroni and that eis aoe masini Sroea mize ef) ten a, ot for every ona or °. say roo Suppose that & i local manimizer of local misimizer of f(-) but that, Afesy a > Othe argoment analogous ie <0) Denote by <6 RY the vector having its mth enty equal to 1 and all other enties equal to 0 (i having ef =| tnd ef =O for ht). By the definition of a (partial) derivative, this means tha ‘here fe an > 0 arbiaily smal uch that E+ ce") ~ f(OYe> 0/2 > 0 and (We =e) = fone = ~a)2. Ths, fe — ee} < fla) < f+ a) In words The function f-) is losallyineressng around & im the dzeton of the mi eoordieate sn But then ean be meter a local maximizer nor a local minimizer off) Contadicion. «| ‘The conelsion of Theorem MLLI eam be sein Figure MLE: Inthe fre, we ave af(ayee =O and f(ayex = ‘A setor S€ RY such that WIR) = Of called crcl poi, By Theorem ML, very leat maximize or local miiize i a rtal point The converse, however, Tan fe pint re 8 ah al masinnr and does not hol. Consider for example, the fonction f(t) = (4) ~ Uy) fined fon B, At the origi we have V/(0,0) = (0,0) Thus, the origin is aerial point, bhut it is aeher a local maximizes nor loa! minimizer of this function. To ‘haratrine oval maximizets and lel minimizer of /(-) mor completely, we must look at secondorder conditions. “theorem M32: Suppose that the function FRY Ris twice continuously citeren Mabie and that fs) =O (0 1.728 i loca! manimier, hen the (eymmev) Mx N matrix DE) (iy 4 D'ND) ts regotive dint, then isa lecel maximize Replacing “negative” by “positive” the same Is tue for local einimizers Proof The idea is follows For an abiaty direction of displacement 2 €RY and scar 2 Taylors expansion ofthe fanetion #2) = f+ e) around e'= 0 gives f+) ~ fli) = e9flay2 + eeD*YLaIs + Remainder = ee Diy(as + Remainder, sahete '€ Rand (ie) Remainder is smal eis smal If a oe maximize, then fore small we must ave (HEIJUE + 42)— J(0)] 0, and so taking Timits HDisiaye 50 Similarly, fe-D? lade < Ofor any # #0, then f+ 2) < fA) for e> O sal and sorta local maximier. In the Borderie ese in which D2/( i negative semiefnite but not negative elite, we cannot assert that i a loeal maximize. Consider, for example, the Tunction f(s) = whose domain sR Then D?/(0) is negative remiefnite because PyeOyx 0. but 3~ 0 8 neithr a local maximizes nr 2 Leal minimizer ofthis Finally, when s «local maximize of /(-) or. more generally rt pot) sutomatialy global maximize? Theoret M23 tel stata siient condition isthe conc ofthe objective fonction 4 ‘Theorem M33; Any rie! point fof a concave tution (9) [i any & satisying ‘Ua = 0) global mesimizer of) Proof; Reel from Theorem M.C1 that for a concave function we have fla) s 143) + BFR) Ce 8) for every i the domain of the faneion. Since Pf) =D (os lsu that 6a global maximizes, fy analogous reasoning, any ert point ofa conex function -) & elobal minimicer 65033" 21. ths ios dy om The M3 tate i lb minis oJ iF yin pb anime of -JU ant) come and ely 70) ovenMLK Constrained Maximization We star by considering the problem of maximizing & fonction f(-) under Mf equality constrains. Namely, e study the problem Max fee) Kn, st ao = 00) ~ by here the functions fyi): -u+) ae defined on RY (or, move generally on sm open set dc RY). We assume that NZ Msi M > N there wil generally be no pins satisfying all of he eonsrains “The st of alle R®saisying the constants of prabln (M.K.1 is denoted ERM gR(0) = By Lor m= hose) and is called the convent set. The deinions of lca! consiraned oF a global onsrained masinier ate parallel to those given in Definition MI, except that we ‘ow consider only points that belong to the constant se C. The feasible point $€C ica loco! constrained maxinizer i problem (M.K.1) there exists an open teighborood ofS sty A’© RY, such that f(a) 2 f(x) forall nA 0G, thats ‘it slves problem (M.K.1) when we replace the condition eR" by x64. The point & is «global cnsrained maxinier st solves problem (MK. that isi {82 fle) forall x6, ur fst result (Theorem MK.) sites the frstonder conditions for this constrained maximization probe. poem MK: Suppose that (MK 1) aredlterentabie an Also thet the W mati 1 constraint functions of problem local consiaines maximizer. Assume so) aga, oe Sn ond) en tas an This ical te consi qusieton say tae constins fe Indeperaat a) Ton ere se moons ce one reach conrar a0, atm ony 7 ho or, in more conse notation [ating lor eveny m= BoM, (MK eet E savant (4x3) m8 ‘The numbers jg ave relerced to as Lagrange multoers Proof The role ofthe constraint quslifition i to insure that is ako & Toe ‘maxis in the tnearigs problem Max 004 vse =2) se Youn = Youlsr(e 210, ‘n whi he objective function and constant have ben laine around the point, Tha, the constraint qualicaion gusanter the corres of the following ‘ntuitively sensible statement: If is local constrained maximize, then eve) ction of dsplcementz€R having wo fstorder est on the constrains tha | saying Vgq( 2 = 0 fr every m, msl alo have no frstorder eft on the objet function, that i, must have W/(e)= =O Gee aso the discussion afer the Pra and Figure MK. 1) From now on we assure thi this is tee “The resi just abit of linear algebea Lat E be the (M+ 1) 8 matrix whose frst ow is @/()" and whose ast Mow ze the vector 09), Vou By the implication ofthe constant quaieation aed above, we have (zB: Vya(8-# =O forallm) = [2¢ RY= = 0}. Hence there wo liner spaces hve the sme meron MM. Thoefre, by a bas result fina algebra rank E = M Hence, @/(3) aust be linear combination ofthe linearly independent st of gradients W543), Youd This is exactly what (MK3) says. In words, Theorems M.K.t asserts tha alos! constrained maximize he acient of te objective function ie linear combination ofthe gradients of the forse futons. The indiepensabity ofthe constant quaifcation i Uusrted in Figure MK.I. Inthe Figure, we wish to maximize a linear fnction fay) in the constraint set C= {sy 83) € WP gate.) = By for m= 1,2 [the igure shows the lac of points satsying g(r. x2)= By and guy 2) = By a8 well as the kv seis ofthe anetion J(-)}, While the point #3 global comsained maim (i the only vector in the constraint se), we se that V/s) sa spanned bythe vectors e,(t) and Wo) [Le it cannot be expressed asa near combination of 98) and esti Note, however, that Voy(2) = ~ By), and so the constraint qualification oy Ingest of teis ioe, Observe tat, indeed, mo a lal maize of f(8) + V/A) ~ 2) 3) sine f(-) ear) nthe eae consent et (es) RE Pp(BVE~ 2) =O for m= 12}. Cen the First-order coacitions (MK.2) or (MLK. ate preseted in a sghily siterentway. Given variables 2 = (8)... 44) and 4 (yes 2h Me can define "he Lagrangian farction Ue.d)= fle) ~¥ haga [Note that conditions (M.K.2) (or (MK3)) ate the (enconsrained) firstorder onditons of this funstion with respect to the variables = (x,y) Simla constraints) = Oat the is-order contons of Li) with espect to the Nariales = (yes vdy) tn aurmary, Theorem MK. say that i315 lead Consrined maximize (and ifthe coset qualifications satisfied), then for some Values. yal ofthe pata derivatives ofthe Lagrangian faction are ul Ute SUC by Ofor me A and 8008 Ay oO for m= a M "Theorem Mt imps tat iH a lal maximizerin problem (MKC), then the NM vatiables yoy Fy J+J) te a solution othe NY + Mf equations Founed by (MK.2) and 998) By fot mo ME “There is alo a secondorder theory associated with problem (MK.I). Suppose tha at & the constraint gualifcation ir satisfied and that there are Lagrange traps sating(MKC3) fe 3 teal maxis, then DEL 2) = DIG) —EAnF 0068) isnegatv emidefite on the sbepace (xe R": Vg (3) = Ofo all m)-In the other Gitection the vector feasible ve, XC) and satis the fst-onde eonlions (M2) andi DELLE, 2) negative dete the subspace (2 € RY: Veal @)= = 0 for alim. then & isa local maximize. These conditions cane verified using the eterminanal est povided in Theorem M.D3. Finally, note that les! constaied minimizer of J) #2 local eoestexned inasimist of =/(y and therefore Theor. MIKI and our dicutsion of second fdr conditions above i alo sppiable to the characterization of lea eastraned Inequality Constraints We now generalize our analysis to problems that may hve inequality constants ‘The base problem is therfore now Max fo) KH sto = 6, auto) bu hos 00) Seas where every fonction is defied on R (or an open set A'c RY). We assume that Nii + K-ltisofeoure possible obave M = O(n equality constraints) or K =O (a ineguaty constrains ‘We grin denote the consrint st by CRS, and the meaning of «local ‘onstained mariner or a global constaned maximizes is unaltered from above, ‘We now say thatthe constraint qualifetion is satisfied at Z€C if the con stcins that Rod at 3 with equality a independent; that i ifthe vectors in [aq(8)im= 1...) w (Wha): h(8) » ) ae linearly independent. "Theorem MAK presents the frstorder conditions fr this problem. Al ofthe functions involved ae assumed to be diereatiable ‘Theorem MAK: (Kulin-Tucker Conditions) Suppose tat #6 C's & local maximizer ‘problem (M4), Assume algo atthe contain qualiicaton i saisied. Then ‘hur are multipliers age R, no for each equally conetal, and 2y eR. one for eseh inequality conetaint, such tat” (i For every n=, my a 1, & 4, dhtld Bay ay a Ce WIA)» SA Vontid + Fe VAC ons) (i) For every = tesa 20h) 6) =. ay es ie= for any constaiat# thet doesnot hold with equality Proof We ilustrate the proof ofthe test for the ease in which there are only Inequality constants (ie, M = 0) “As withthe case of equality contains, the roe ofthe constraint qulifeation isto inure that & remain local anime in the problem linearized around £ ‘More specify, we asume frm aow on thatthe lowing i rue: Any direction Itdiphcement £8" that satisfies the constraints to at order (i, such that assis <0 for every k with HG) = &] must not create a frtorder increase in the ebjetve function, hat is, mut have V/("2 <0. Tn Figure M.A 2 we represen a problem with (wo variables and «wo constants foe which the lope ofthe resale lustated and made plausible. The Kun-Tucker theorem saps that iia Tol maximize then WY/{=) must be inthe cone Ta {yeRtiy= A0h(3) 4 2,bs8) forsome (Qy.22)2 0) depicted in the gue that i, V/() must be a nonnegative near combination of ‘Gh and VG}. Suppose now that Fis 8 lea! maximier. I stating fom we ‘move along the boundaty ofthe constraint st to any point (+ 2 83 +9) with yO and 2,0, then nthe situation depicted we would have NG tek tAD RE, Mh trek tH) f and y-2 < for every ye T Sine OeT we must have > 0 Hence, (a) > 0, Also, for any ye F we have ye forall 3 0. But then Oy-2-< cam hold forall J ashen lege) only if y-2 5 0. We eonclude therefore that V/(3}-2 > O and Why =)r2 <0 forall k, which conteadits the linearization implication ofthe contains qualifeaton, & Ws common in applications that constraint take the form of nonnegatvty requirement on some variable x,: that i x, 0. In this ee, the appropriate first-order cogtions requie only sal modieation of those above In partiulat, we need only change the fstoder condition form 10 PO 6 5 dal), & os, pa with equity f.> 0. (MK) ‘To see why this Is so, suppose that we explicily introduced this nonnegatity fequrement as our (K + 1th inequality eonsteant fe, he (2) = =x, OJand et Dues 2 0 be the orrexponding mulipi. Note that iy. (hes y(2/08.) =~ qsy and Oy. SExy = 0 for n” # n This, we apply condition (MK) of Theater M.K.2, the only modification to the first-order conditions i that the first-order condition Fr ow YG), $4 soled, p aels teow BR, A and we have the added condition that m deat Sut these Iwo conditions are exacy equivalent 1 condition (MLS) Given he sip ofthe adjustment regured to take account of nonsegalivity conseans, ieiseusiomat in applications not oexpiil introduce the nonnepatnty contain tnd its associated multiplier, but rather simpy to modify the usual first-order ‘conditions asin (MKB), "Notas that any constrain ofthe orm h(x) 2 can be writen as h(n) < —Z Using this fact, we see that Theorem M2 extends to constraints of the form huts) 2 & The only moieaion is thatthe sign rerriton on the muller of onstrunt K iS now 2 <0. Similarly, because minimizing the function JC) is ‘equivalent to maximizing the function —f(-) Theorem M2 applies also ileal Imiimizes, wih the only change being that the sgn terion on all of the lpi ow (2) O [assuring thatthe constraints areal til writes sin problem (MKD). “The second-order conditions forthe inequality problem (M.K.4) are exacly the same af those already mentioned for the eualty problem (M.K.1). The only tdjustent is thatthe conscants that count are thos hat bind, tha i, those that hold with equality a the point & under consideration, Suppose that a vector x€C satisfes the Kuha-Tucker conditions, that is, ‘conditions (i) and (i) in Theorem M2 When can we say that xis 8 global Imasimier? Theorem M.K3 gives a useful tt of conditions. ‘Theorem MX3: Suppose tht hare are no equaliy constrains (.., Mf =0) and that every inequality constant ks given by a quasiconvex function hy)? Suppose Yee =a) >0 for any and wit He) > MOx). MK) ‘Thon i ££ salsties the Kuhn-Tocker conditions (condtions () and (i) of Theorem M2}, andi the consiaintqualication holds at follows that 16 1 gabe! maximizer Prov Suppose tha this isnot so, tha dat fs) > f) for some xe RY satising ns) 6 far every k Denote = x ~ 3, The, by (M.K9) we have Uf(@)2 > 0. If 2,0, then the Kuhn-Tacker condition imply that (8) = &- Moreover, since Cis quasconvex and h(x) <= KG) it follows that Vh(@)z <0. Hence, we have both V/(2)-2 > and, J,0h (2-25 O which contradicts the Kuhn-Tueker conditions because these reuiv that Vf() = Ey AVA@)- ® 14. ited we ave V/() a ~ x} <0 whenever fx) < ts) and the eis have tea hance, MISE Nove that condition (M.K.9) of Theorem MLK. is satisfied if (-) is eoneave of it pn quasiconcave and U/C) # Ofor alle RY. The condition thatthe constraint fonctions nC) she) are quasionven implies that the constraint st C convex fcheck this) ta Figure MCA, we iltsrate the theorem fora ease in which Noa K=n2. M =O, and f(-) i quasconcave function with W/(s) #0 for all x “The inispenstity of condiin (M.K.9 in Theorem M.K.3 shown in Figure Mac There we have N= iM =f andthe quasconeave function f°) i being Iaainized on the constrain 2 C'= [z6R:Mx) <0}. In the figure, the point < {isles the Kuin-Tucker conditions for a multiplier value of = 0, but not a obal maxima of f0) on € (he point =i the global contained maniniec Note, However, that condition (MK. 10) is wiolated when x = 8 and x’ = 2° ‘We observe finaly in Thocem M.K.¢an portant implication ofthe constraint set C sing conten ad the objetive function f() beng sly quasiconenve “Theorem WX: Suppoee tha in problem (MK the constraint set Cis convex and the abortive luneion (.) fs sly quasleoneave. Then there a unique global onatamed maximize Proof: x and xx were both global consteined maximizes, then the poiat rete Un a}e for we Q,t) would be feanble (Le, x ¢C) and by the sti quaiconcavi of (2) would yl a higher vale of fhe 0°) > 0) = S00, ‘Sopp ta inthe case a wich ony neguay connie present we denote by Cc. hb raaedcostsint arin whe th Kh inequity contint 1 roped. The faowing two ace ne fen wel petions Ai ttuarz fuvorah v6 C.y anti h(e &then isa lol contin asinine sn paon ALt) That in me sae 8 contains opinion problem ignoring 4 trun and he slston wenn sates themed contrast os wel then be ‘Esato he fly eomaioed pote Thi flows simpy om he fat hat C= Cn ed swaping {ton Ccam a Yi el these vale [a8 ptimizing 09 C- Se ken 1 esonce, ott sy 6 xi teens ans ts 0 coe | tection wns com (i) Soppose sat all of the conse entons Myo af continuous and quantontr and hat condition (MEK) bade Ten 2 2 oto o problem (MK 4s Shite ih conse so binding iat (2) «4, weave JO) 2 forall xe. [Ti tiies te ed asnmpions a contain fen Binding at a aati to poblen {nek sh ten ign tater sod haven fest nthe lation To see hs suppose herrea teres am x sch ta fl > J). Then beans the contain itcioes ACh aha) te guscomve: ne Knott the pot wf) ~ ex" a)8 rescence ne (0.1) Bova the Kh consi et nding at, theresa #0 eh that A) < fr ale Hence Ma) eC fo all 2, Bu the sone offs) sta Of O/tartr =) > 0 [rel that condition (ME) hols and thas by nso fc) > JO, Tao, tere mast bee pot (2)eC sch that tan> Jahon coaraicin to 4 ng + Boba contraied mami in poem hes Par 3 ‘het aneton sing 7) #0 ‘erat et sattedon Scodtont tf imp thats otal Comparative Sti ts ou previous discussion we have trated the parametes B= (iy) sn 2 ete eu) of problem MKC 3 gen, We wil ow lt shem vary. Sonpos ha hee RY ave parameters for whic problem (M K-8) has some solution (8.0) and denote the vale of ths solution by be) = f(b). Under fay general conditions (ce the sll ype atthe end of thi section, the value ive) depends continuously onthe parameters (2 “Theorem MACS provides an interpretation forthe Lagrange rules as the “shadon pits" of he contains ‘Fhe meray af ‘Theorem MKS: Suppese that an open neighborhoos of , 2) the sat of binding ‘eon (MLR IO) onavainte romaine unaired and tat bc) afertiable a (, 2)” Then ewem MKS for every Proof Ths sa particular ease ofthe envelope theorem (Theorem ML!) 10 be pte inthe net section. “Cones more eer opinizatonrblen Wemainie a fanton RP + Reject. to sec) ater Ci) 6 4 nomngy cravat seh and ¢ = (@--99) blons 1030 nse of prams QR Soppoe it) contiguous a hat CC) imps forenery ge Then we know (eee Tete M2 part (3) tha the maximum pobier fis laste solaton Dent yx «Cle set of solutions corresponding tog and teen aye fe any nen] the atated maximum vase. Theorem MXC comers Se coatnuty of 308 ‘Treovom MLE: (Theorem of the Marin) Supose tat te contantcorresondenee (C10 sis contnvous (eee Secon Wn) tnd ta) Ina etn tunedin. Then themowmirercoreeponaeace x0 = RY upoet nenicominoos ad th vale fneten 27 These simppng smptins iil oe mor neta but ede heThe reat stant be improved upon, Suppote tht we maximiae x +5) subject to sy€(0t). sye(0t) and gay tana S gts oe = ease = GDH Then the smatinizercvrespondence pen by x)= (4s) face @)= (a0) Hace, Ade HAH) Hee Both the bt fanin a the constrain corependence are continous (you shout heck the ie) Tn acrdance with Theotem MK.) ope emcontnvous But ‘ot ontinous hes a expen alg te ine, = 4) On the eh amd spon hat ste tate Q= [0.1}" The the conclusion ofthe teem lithe maninizeeoetpondene ‘Snot upper bencomiasou [weave (26) = (del bu 9) = [C 1}) However he "sumptions aoa a » (0) the vet (1 beng te ona eb arg =e) over x wih, +1, > ebengs tothe contain wt Hebe he cost arenes ‘So eominuous one ended 0 Q = (0.1 The Envelope Theorem In this section, we tetra to the problem of maximizing & function f(-) under constants, but we suppose that we want to Keep track of some parameters 41 = Gy---v4g) € RB entering the objective fueton or the constraint ofthe problem Ta patie, we now writ the maximization problem as Max fsa) muy stave =a, Pubs @) = bu ‘We denote bys) he ealue faction of problem (ML that i 9) she wale stctned by J(-) aa solution to problem (MLL1) when the parameter vector To be specie, we suppose that s(q) 8 welldeined im the neighborhood of som selerence parameter vector 4 WF. Ics then nara to investigate the marginal ees of changes ing om the value ua). The enelope theorem adstesses thi mater willbe convenient fom now onto assume that, a last loaly (efor values of ¢ cose tod), the solution to problem (MALI) a (dietentiabl) function x) Wecan then write 4a) = f(e@)@) “Tostart with the smplet case suppose that ther is single variable and singe parameter (e, N = K= I) and tha ther ae no contents (2, M = Oy Then by the chain rae 44d _ eftolOnd) , fos ald) x aa) ihr oie gure vector nce conser thet bdig coma 6 hang te oscusion spies stomatal tthe ue mih ean nea, a — te) fie} | But note, and this is a key observation that by the first-order conditions for unconstrained maximization (ee Section MJ). we must hive &f(a). oe = 0 Therefore. (MLL2) simples to 4@) _ fe. 0) 4 That ste fat that xg) determined ty maximising the fonction +4) has the ‘implication tha in compatig the first-order eect of change in gon the maxim ‘val, we can equally wel assume that he maximizer wil not aust. The ony eet of any consequence the det effet, ‘This ets illustraed in Figore ML, which also motivates the we ofthe tern “envelope” In the figure we represent the funtion f(x) for diferent values of = Because at every 9 we have «(@) = Many fl) the value fonction ¥) fe given by "he upper envelope of these fnetons. Suppose now that we considera fied Then, denoting x = a() we have f(8: 4) = aa (oF al a0 fC @) = W@, Hence, the baph of f°) es weakly below the graph of") and touches it when q = 4 So "he oo praphs ave the same slope at that poi. This is pecs what condition (403) eye We now sate the general envelope theorem for problem with any numberof ‘variables, parancter, and constraints. As we will tis conclusion is sar (0 (M13), excep that Lagrange multipis play a important role ots) Theorem MLA: (Envelope Theorem) Consider the val function vq fr te problem (WL). Assume tat is ctferoniabe at Ge RS ane at fy.) are wales of te Lagrange mutipiors associated wid the maximize toutin (0) # @ =H, dente Oa, ie forge tS, MLM ‘sled ina mightaoadofg heexpresons Land QS atl ah Aon ‘he nonbig const i have ne theo ethane oo sag bad oe (ecace ie sced mips nee). Fares The envoy heoteBua) = Veltein. a) = Fd mt mus) ron We proce a inthe case fa snl eile and po extant Let x) Bethe moxie fanton, Then) = 9 for al. and therfore, sng he chanel we have Bo omen, § (eam) Hay BN a, “The fstdecondion (M.K.2) ew tat 2foadh ad, # , Beals) oer aaa Here (owing the nder oF summation 38 we Eo ens, $4, $ (Pana Bye Eo Moreover, snce 909 for alg, we have & (een(8 8) 2400) _ Balt) EEA) ne Combining, we get (MLA) a foram = inear Programming Linear progtamming problems consis the special eases of eonstrtned mimi tion problems for which both the constants and the objective function are near fn the eiables (0589) 1h generalist programming problem is ypcally writen in the form Max fest fete anny stan, toot aunty Se nats +14 Sean Oe Max fox where Ae the K x N etic with Eettic etry Guy ad FER ce RY. and ce RE tne (clare) vectors" 2. ea he th a rig oie a comin (os ant tre Figure MLM represents a liner programming prblem with N= 2, the (wo constants 2x, + sy 2-4 and x; +3¢, 5 7, andthe objective function y+ 'A most interesting fact abou the lieat programming problem (MMI is tha veh it we can assole another linea prowrarming problem, elled the dual Trobe that asthe form af minimization problem with K variables (oe for ech onset ofthe original or prin poble) an constrains (one fr cach variable ‘tthe primal problem Min eid) too Hee may Peers tanh 4+ eeehe See aE he whese 2 QE is a coum vector. Figute M2 represents the dual problem aisociated with Figure M.M.I, The constrains are now 24, + 2, 2 Land i + 34 2 1 andthe abjertive function is row day + Ta ‘Suppose that x€ RE and 26 RE ea, especiely th constraint of he primal and the dual problems. Then fons (Alipex = (As) sem ck iy “Thos, the solution value tothe primal problem can be no larger than the solution “alae tothe dual problem. The duality theorem of linear programming, now to be Sted says that these values are actualy equal The key for an understanding of his fact is that a the notation suggest, the dual variables (2.2) have the interpretation of Lagrange multipliers Dinar programing ‘robien he pra Direc prograing protien ie dl‘Theorem MALI: (Oually Theorem of Lines Programming) Suppese that We primal MN ‘problem (MM) ating a maximum valve veR. Then ¥ fe also te malmur ‘alve stained by the ual problem (MM.2 Proof Let ZR" be a maximiter vector for problem (MM.IL Denote by GyoosJg) 20 the Lagrange multiplies associated with this protiem (ee ‘Theorem ME.2)9" Formally, we regard 4 as a column vector, Then, applying ‘Theorem M.K2, we have Mims and T4e~ Ai) 0. ence, J sss the consents ofthe del probem (since ATE f) and he Len bat = U8 = fa ou Now. by (MMS), we Know that €-132 f-8 for al Ze such that A 2 f Therefore er} e-8 if TAB f So (MMA) telus that in fat 1 solves the dua problem (M.M.2) and therefore the value ofthe dual paler, e-, equals the Value ofthe primal problem. = We can very the duality theorem fr the primal and dual problems of Figutes MMA and M.M2 The masimizer vestr for the primal problem is f= (1-2, Yielding vale of 42 = 3.The minimizer vector forthe dual problem is = (, Yielding a value of 48) + 7) = 8 = 3 Dynamic Programming Dynamic programming isa technique forthe study of maxinizaion problems defined lover sequenes that extend to an infiaie boron. We consider here only 4 ery Particular and simple ease of what i avery general theory [an extensive reve 2 ‘onttined in Stoke and Lucas with Presot (1989). Suppose that Ac RY is nonempiy, compact, se? Let ui A x A eR be a continuous funtion and let 8 (1. Given vector A Gnterpeted os the iia condition of the variables (x), the maximization problem we ae now interested Max E sutsto) oan Sse d lorevery 6, es not mathematically dificult to verily that a masimier sequence exists for problem (MIN) and tha, therefore, thee i a maximum value 42) ‘Te fenton © A = Bis eal the vale fnction of problem (M1) AS with u(--) Hel, the "ale function i continuous. I in addon, dix convex and i") is concave, then 4) is alo concave. 21, For ines toraming robles te socinin gain i ot eu Po acter ‘the ean heen unt fm on guaiaon 32 Tie cmpaceen snmp sna be apne mh eel a 6 be mash Wis iy clear that for every 26.4 the valve function sstisis the so-called ‘elim equation (othe Belnan optimality principe) Max ae) + dt "is perhaps mote surpising tha, as shown in Theoesn M.N4 the value function isthe onl function that sates this equation Theorem MALI: Suppose that /:A — Ris # continuous function sch that for every 176A the Betiman equation i sats hati, fa) = Max we. 21 + 62) (ana) fora ze. Then the function f-) oieises with what, rea eon every em Mee ES But us To, the teem 3/() makes an increasingly nelible contribution to the sum, We conclude therfore that f() = 3). © ‘Theorem M.N.I suggests a procedure forthe eompatation ofthe vale funtion, Suppose that for r= O we start with an abivary continuous function fy: A~ fe “Think off) a8 atria “evaluation” fasction giving a temaeevsustion ofthe ‘alco starting with" A.Then wean generate pew tentative evaluation anton Ji) by eng for every 264, Site) = Max ae. 29 + 560 WJ) =f), then fe) sass the Bains equation and Theorem MLN tls ws that i fet 0 = 0). IC) # then J) was ot correct. We could hen ty again, arin with the nee etative fi) This wil give ws fenction ft) and so on for an entire sequace of funtion (fz. Doss thi ake us anywhere? “The answer i that it does: For every re 4, we bate fe) =e) at ree Tha sr increases, we approach the corres eration of. Suppose that the soqurne (&fg 8 eqn (or a rg) that sles Ge rmaimiaton problem (MN). A fro evry #2 the deco ken mst Be ining he ram in (MUN, wee hat & mse Max ion) + Assuming at 5 te iti of A,(N) impli that » ° ans) BiB) Bd Benen 2 unafor evey nfo B29 The eesesary codon expel by (MA) acl he Baer onto of robin (NL 53. Now te anctn a) D2 siuent he Hvar fhe initial prod an ‘teil vaateat be tage pond In coin NA) evar empena nena pe td ari mth component theese! pens Chan A (90 Fenda Mata Mahal noe Ma New Yr: Mia Feliu UM) Mart Opin en Beam Py. Event li 8: Pee Noh (99, Mate fr smi New Yet NY: Aen Pes. Sinan P= ted Mone CM Matas fo Erm New Yo Norn. Sune Kt.) an (1) Maha or Emme ns Epes CK, N Index ee monte eS‘Coe poner 0,997,480 Sead ge beret sSic'ci