A NOTE ON THE OPTIMAL CONTROL OF STOCKS ACCUMULATING WITH A DELAY

Ralph Winkler

Macroeconomic Dynamics, 2011, vol. 15, issue 4, 565-578

Abstract: We study a generic optimal control problem with a stock that accumulates with constant delay. We show that the optimal system dynamics reduces to a system of ordinary differential equations, implying monotonic optimal paths, if the objective function is additively separable in the stock and the control. This is, however, not true for general objective functions, which may exhibit nonmonotonic and oscillatory optimal paths. The reason is that the impact of the stock on the objective depends on the current level of the control, whereas the control influences the dynamics of the stock with a delay.

Date: 2011
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