No. 677: A Generalized Endogenous Grid Method for Non-concave Problems
Giulio Fella ,
Queen Mary, University of London
May 1, 2011
This paper extends Carroll's (2006) endogenous grid method and its combination with value function iteration by Barillas and Fernández-Villaverde (2007) to non-concave problems. The method is illustrated using a consumer problem in which consumers choose both durable and non-durable consumption. The durable choice is discrete and subject to non-convex adjustment costs. The algorithm yields substantial gains in accuracy and computational time relative to value function iteration, the standard solution choice for non-concave problems.
J.E.L classification codes: C63
Keywords:Endogenous grid method, Non-concavity