Coase Meets Bellman: Dynamic Programming for Production Networks

Abstract

We show that competitive equilibria in a range of useful production chain models can be recovered as the solutions to a class of dynamic programming problems. Bringing dynamic programming to bear on the equilibrium structure of production chains adds analytical power and opens new avenues for computation. In addition, the dynamic programming problem that we use to explore production chains is of interest in its own right, since it provides new optimality results for intertemporal choice in an empirically relevant setting.