Euler Equation

An Euler Equation is a difference or differential equation that is an intertemporal first-order condition for a dynamic choice problem. It describes the evolution of economic variables along an optimal path. It is a necessary but not sufficient condition for an optimal path, and so is useful for partially characterizing the theoretical implications of a range of models for dynamic behavior.
Whatever solution approach one employs to analyze a dynamic choice problem, part of the solution is typically an Euler equation stating that the optimal plan has the property that any marginal, temporary and feasible change in behavior has marginal benefits equal to marginal costs in the present and future.