ABSTRACT
This chapter introduces non-linear models and applications, emphasizing their close relationship. It presents the Nash bargaining solution, one of the classic results of cooperative game theory, which prescribes the rational way in which two players should divide a fixed amount of money. The chapter also presents mechanism design, which is a field in economics and game theory that finds the rules of a transaction by solving an optimization problem. It reviews the dynamic models, specifically to solve a public policy problem of how to fight drug traffic. The chapter discusses stochastic programming, in which some parameters are random variables. It also discusses integer programming, solved with a branch and bound method, which generates a tree of linear programs that allows forcing the decision variables to integer values. The chapter examines the dynamic programming technique, which divides the problem into subproblems that can be solved applying the Karush-Kuhn-Tucker conditions.
