In the recursive model, the subject maximizes value or welfare, which is the sum of current rewards or benefits and discounted future expected value.
In addition, some scholars also cite the Kalman filter invented by Rudolf E. Kálmán and the theory of the maximum formulated by Lev Semenovich Pontryagin as forerunners of the recursive approach in economics.
[4] This book led to dynamic programming being employed to solve a wide range of theoretical problems in economics, including optimal economic growth, resource extraction, principal–agent problems, public finance, business investment, asset pricing, factor supply, and industrial organization.
[9] There are serious computational issues that have hampered the adoption of recursive techniques in practice, many of which originate in the curse of dimensionality first identified by Richard Bellman.
Applied recursive methods, and discussion of the underlying theory and the difficulties, are presented in Mario Miranda & Paul Fackler (2002),[10] Meyn (2007)[11] Powell (2011)[12] and Bertsekas (2005).