Policy function calculation from value function iterations

Today we consider the basic AK model and its Bellman equation:

where or and

We consider the following two state model with more general setting:

and

where and . Each probability lies between 0 and 1.

The model considered in 0728 is the case with .

The resulting policy functions are exactly the same as what we got in 0728.

There is nothing in-between.

Notice that grid method is valid only for a single value function.

We had better compute each policy function separately.