Policy function calculation from value function iterations

 

We approximate the continuous random model with labor:

 

 

by switching model with infinite many states in order:

 

 

 

 .

 .

 .

 

where

 

 .

 .

 .

 

for many states.

 

We calculate each policy function for each as it is set like

 

 

independently for each i and calculate the next index number.

 

Now constant labor will also fluctuate.