Summary.
This note provides a simple proof of the necessity of the transversality condition for the differentiable reduced-form model. The proof uses only an elementary perturbation argument without relying on dynamic programming. The proof makes it clear that, contrary to common belief, the necessity of the transversality condition can be shown in a straightforward way.
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Received: January 22, 2001; revised version: April 2, 2001
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Kamihigashi, T. A simple proof of the necessity of the transversality condition. Econ Theory 20, 427–433 (2002). https://doi.org/10.1007/s001990100198
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DOI: https://doi.org/10.1007/s001990100198