I have defined the following function:
def GMM(s1, s2, s3, s4, s5, a):
    """The GMM objective function.
    Arguments
    ---------
        si: float
            standard deviations of preference distribution
        a: float
            marginal utility of residutal income
    Paramters
    ---------
        Px: array (1,ns) 
            projector onto nonprice characteristic space
        xk, z: arrays (J, 5) and (J, 12)
            nonprice char. and instruments
        invW: array (12, 12) 
            GMM weight matrix
    Returns
    -------
        float."""
    delta = invert(s1, s2, s3, s4, s5, a, delta0) # Invert market shares to get mean utility
    bmean = np.dot(Px, delta)                     # Project delta onto charancteristic space
    xihat = delta - np.dot(xk, bmean)             # Compute implied unobservable prod. quality
    temp1 = np.dot(xihat.T, z)
    if np.any(np.isnan(delta)) == True:
        value = 1e+10
    else:
        value = np.dot(np.dot(temp1, invW), temp1.T)
    return np.sqrt(value)
My question pertains to the variable delta bound inside of the function.  Outside of the function I will set the initial value of delta0.  Now, ultimately I will minimize this function.  What I would like to have happen is that each time the function GMM evaluates, delta from the previous evaluation is used as the new delta0.  I tried defining delta0 as a global variable, but it did not seem to work... likely this was my error though.  Although, I have read here that generally this is a bad approach.  Any suggestions?
There are multiple ways to achieve what you want. delta is saved across function calls in the following examples.
1- Class
class Example:
  def __init__(self, value):
    self.delta = value
  def gmm(self):
    self.delta += 1
    return self.delta
e = Example(0)
print e.gmm()
2- Generator
def gmm():
  delta = 0
  while True:
    delta += 1
    yield delta
for v in gmm():
  print v
3- Function attribute
def gmm():
  gmm.delta += 1
  return delta
gmm.delta = 0
4- Global variable (discouraged as you said):
delta = 0
def gmm():
  global delta
  delta += 1
  return delta
etc...
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