Abstract
Since its introduction in the early sixties, optimal control has been used extensively to determine strategies in many areas of economics. Economic policies based on closed loop optimal control (CLOC) laws are the most powerful and stable, but yield a control vector with continuously changing components. Such policies work well in organizations or institutions with reliable information, with a centralized small group of decision makers, and with clear communication lines with the agents implementing the policies. The reality of many decentralized organizations is that poor communications and model inaccuracies are often the source of discrepancy between the expected and actual performance of their policies. The inaccuracies can be either structured uncertainties (inaccuracies in the coefficients estimated for the model) or unstructured (omission of relevant variables, lags, underestimation of the order of the model, and any unmodeled dynamics). Since model inaccuracies have strong adverse effects on system performance, it seems natural to implement a set of laws that are simple enough to allow for fast implementation, that are robust to model inaccuracies, and that still yield a near-optimal performance. Two complementary tools have been developed to cope with the degradation of system performance due to uncertainty; Adaptive control, which is introduced in the next chapter, and variable structure control.
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Sengupta, J.K., Fanchon, P. (1997). Variable Structure Systems. In: Control Theory Methods in Economics. Springer, Boston, MA. https://doi.org/10.1007/978-1-4615-6285-6_6
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DOI: https://doi.org/10.1007/978-1-4615-6285-6_6
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