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You are on page 1of 27

c

Leopold Sogner

Department of Economics and Finance

Institute for Advanced Studies

Stumpergasse 56

1060 Wien

Tel: +43-1-59991 182

soegner@ihs.ac.at

http://www.ihs.ac.at/soegner

September, 2012

Quasiconcave Functions

Motivation (1)

Micro I

Motivation: Sucient conditions for maximum for Kuhn Tucker

problem: Suppose that there are no nonlinear equality constraints

and each inequality constraint is given by a quasiconvex function.

Suppose that the objective function satises f(x)(x

x) > 0

for any x and x

with f(x

) > f(x). If x

satised the

Kuhn-Tucker conditions, then x

Mas-Colell, Theorem [M.K.3]).

Jehle, Reny: Chapter A 1.4, 1.4.

Mas-Colell, Chapter M.C

1

Quasiconcave Functions

Concave Functions (1)

Micro I

Consider a convex subset A of R

n

.

Denition - Concave Function: A function f : A R is

concave if

f(x

+ (1 )x) f(x

If strict > holds then f is strictly concave; (0, 1) and x = x

.

This last equation can be rewritten with z = x

x and = :

f(x + z) f(x

) + (1 )f(x) .

If f is (strictly) concave then f is (strictly) convex.

2

Quasiconcave Functions

Concave Functions (2)

Micro I

Theorem - Tangents and Concave Functions: If f is

continuously dierentiable and concave, then

f(x

) f(x) +f(x)) (x

strict concave for all x = x

. [Theorem M.C.1]

For the univariate case this implies that the tangent line is above

the function graph of f(x); strictly for x

functions.

3

Quasiconcave Functions

Concave Functions (3)

Micro I

Proof:

: For (0, 1] the denition of a concave function implies:

f(x

) = f(x + z) f(x) +

f(x + z) f(x)

f(x + z) f(x) +f(x) z

4

Quasiconcave Functions

Concave Functions (4)

Micro I

Proof:

: Suppose that f(x + z) f(x) f(x) z for any

non-concave function. Since f(.) is not concave

f(x + z) f(x) >

f(x + z) f(x)

Taking the limit results in f(x + z) f(x) > f(x) z, i.e. we

arrive at a contradiction.

5

Quasiconcave Functions

Concave Functions (5)

Micro I

Theorem - Hessian and Concave Functions: If f is twice

continuously dierentiable and concave, then the Hessian matrix

D

2

f(x) is negative semidenite; negative denite for strict

concave functions (and vice versa). [Theorem M.C.2]

6

Quasiconcave Functions

Concave Functions (6)

Micro I

Proof:

: A Taylor expansion of f(x

f(x +z) = f(x) +f(x) (z) +

2

2

(z

D

2

(f(x +()z))z)

By the former theorem we know that

f(x + z) f(x) f(x) (z) 0 for concave functions

z

D

2

(f(x + ()z))z 0. For arbitrary small we get

z

D

2

(f(x))z 0.

7

Quasiconcave Functions

Concave Functions (7)

Micro I

Proof:

: If the right hand side of

f(x+z) f(x) f(x) (z) = 0.5

2

(z

D

2

(f(x+()z))z)

is 0 then the left hand side. By the former theorem f is

concave.

8

Quasiconcave Functions

Quasiconcave Functions (1)

Micro I

Denition - Quasiconcave Function: A function f : A R is

quasiconcave if

f(x

+ (1 )x) min{f(x

If > holds it is said to be strict quasiconcave; (0, 1) and

x = x

.

Quasiconvex is dened by f(x

), f(x)}.

If f is quasiconcave than f is quasiconvex.

If f is concave then f is quasiconcave but not vice versa. E.g.

f(x) =

3

is

quasiconcave but not concave.

9

Quasiconcave Functions

Quasiconcave Functions (2)

Micro I

Transformation property: Positive monotone transformations of

quasiconcave functions result in a quasiconcave function.

Denition - Superior Set: S(x) := {x

A|f(x

) f(x)} is

called superior set of x (upper contour set of x).

Note that if f(x

) min{f(x

), f(x

) t and

f(x

) t; where t = f(x).

10

Quasiconcave Functions

Quasiconcave Functions (3)

Micro I

Theorem - Quasiconcave Function and Convex Sets: The

function f is quasiconcave if and only if S(x) is convex for all

x A.

11

Quasiconcave Functions

Quasiconcave Functions (4)

Micro I

Proof:

Sucient condition : If f is quasiconcave then S(x) is convex.

Consider x

1

and x

2

in S(x). We need to show that f(x

) in

S(x); f(x) = t.

Since f(x

1

) t and f(x

2

) t, the quasiconcave f implies

f(x

) min{f(x

1

), f(x

2

)} t.

Therefore f(x

12

Quasiconcave Functions

Quasiconcave Functions (5)

Micro I

Proof:

Necessary condition : If S(x) is convex then f(x) has to be

quasiconcave. W.l.g. assume that f(x

1

) f(x

2

), x

1

and x

2

in A.

By assumption S(x) is convex, such that S(x

2

) is convex. Since

f(x

1

) f(x

2

), we get x

1

S(x

2

) and x

S(x

2

).

From the denition of S(x

2

) we conclude that

f(x

) f(x

2

) = min{f(x

1

), f(x

2

)}.

Therefore f(x) has to be quasiconcave.

13

Quasiconcave Functions

Quasiconcave Functions (6)

Micro I

Theorem - Gradients and Quasiconcave Functions: If f is

continuously dierentiable and quasiconcave, then

f(x) (x

x) 0 whenever f(x

[Theorem M.C.3]

If f(x) (x

) f(x) and x = x

then

f(x) is strictly quasiconcave. If f(x) is strictly quasiconcave and

if f(x) = 0 for all x A, then f(x) (x

x) > 0 whenever

f(x

) f(x) and x = x

.

14

Quasiconcave Functions

Quasiconcave Functions (7)

Micro I

Proof:

: For f(x

quasiconcave function implies:

f(x + (x

x)) f(x)

0

If f is dierentiable, then the limit exists such that

f(x) z 0

15

Quasiconcave Functions

Quasiconcave Functions (8)

Micro I

Proof:

: Suppose that f(x) z 0 holds but f is not quasiconcave.

Then f(x + z) f(x) < 0 for some x, z and (0, 1]. Such

that (f(x + z) f(x))/ < 0. Taking the limit results in a

contradiction.

16

Quasiconcave Functions

Quasiconcave Functions (9)

Micro I

Theorem - Hessian Matrix and Quasiconcave Functions:

Suppose f is twice continuously dierentiable. f(x) is

quasiconcave if and only if D

2

(f(x)) is negative semidenite in

the subspace {z|f(x) z = 0}. I.e. z

D

2

(f(x))z 0 whenever

f(x) z = 0. [Theorem M.C.4]

If the Hessian D

2

(f(x)) is negative denite in the subspace

{z|f(x) z = 0} for every x A then f(x) is strictly

quasiconcave.

17

Quasiconcave Functions

Quasiconcave Functions (10)

Micro I

Proof:

: If f is quasiconcave then whenever f(x

) f(x), so

f(x) (z) 0 has to hold.

Thus f(x

1

) f(x) 0 and the above theorem imply:

f(x) (z) 0, where z = x

1

x.

A rst order Taylor series expansion of f in (at = 0) results

in

f(x + z) = f(x) +f(x)z +

2

2

D

2

f(x + ()z)z

.

18

Quasiconcave Functions

Quasiconcave Functions (11)

Micro I

Proof:

Apply this to x

1

, x with f(x

1

) f(x):

f(x + z) f(x) f(x)z =

2

2

z

D

2

f(x + ()z)z.

If z = x

1

x fullls f(x)(x

1

x) = 0 the above inequality still

has to hold.

This implies

2

/2z

D

2

f(x + ()z)z 0.

19

Quasiconcave Functions

Quasiconcave Functions (12)

Micro I

Proof:

To fulll this requirement on the subspace {z|f(x) z = 0},

where f(x)z = 0, this requires a negative denite Hessian of

f(x).

: In the above equation a negative semidenite Hessian implies

that . . . .

20

Envelope Theorem (1)

Micro I

Consider f(x; q), x are variables in R

N

and q are parameters in

R

S

.

We look at the constrained maximization problem

max

x

f(x; q) s.t.g

m

(x; q) b

m

m = 1, . . . , M.

Assume that the solution of this optimization problem x

= x(q)

is at least locally dierentiable function (in a neighborhood of a q

considered).

v(q) = f(x(q); q) is the maximum value function associated with

this problem.

21

Envelope Theorem (2)

Micro I

With no constraints (M = 0) and S, N = 1 the chain rule yields:

d

dq

v( q) =

f(x( q); q)

x

x( q)

q

+

f(x( q); q)

q

.

With an unconstrained maximization problem the rst order

condition

f(x( q); q)

x

= 0 results in

d

dq

v( q) =

f(x( q); q)

q

.

22

Envelope Theorem (3)

Micro I

[T. M.L.1] Consider the value function v(q) for the above

constrained maximization problem. Assume that v(q) is

dierentiable at q R

S

and (

1

, . . . ,

M

) are the Lagrange

multipliers associated with the maximizer solution x(q) at q. In

addition the inequality constraints are remain unaltered in a

neighborhood of q. Then

v( q)

q

s

=

f(x( q); q)

q

s

m=1

m

g

m

(x( q); q)

q

s

.

For s = 1, . . . , S.

23

Envelope Theorem (4)

Micro I

Proof:

With no constraints (M = 0) and S, N = 1 the chain rule yields:

v( q)

dq

s

=

N

n=1

f(x( q); q)

x

n

x

n

( q)

q

s

+

f(x( q); q)

q

s

.

The rst order conditions tell us

f(x( q); q)

x

n

=

M

m=1

m

g

m

(x( q); q)

x

n

.

24

Envelope Theorem (5)

Micro I

Proof:

In addition we observe

N

n=1

g

m

(x( q); q)

x

n

x

n

( q)

q

s

+

g

m

( q)

q

s

= 0.

if a constraint is binding; if not the multiplier

m

is zero.

25

Envelope Theorem (6)

Micro I

Proof:

Plugging in and changing the order of summation results in :

v( q)

dq

s

=

M

m=1

m

N

n=1

g

m

(x( q); q)

x

n

x

n

( q)

q

s

+

f(x( q); q)

q

s

.

and

v( q)

dq

s

=

M

m=1

m

g

m

(x( q); q)

q

s

+

f(x( q); q)

q

s

.

Remark: remember that the Lagrangian of the problem is

L(x, ; q) = f(x; q)

m

g

m

(x; q). Hence we get

v( q)

dq

s

by

means of the partial derivative of the Lagrangian with respect to

q

l

, evaluated at q.

26

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