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Using age-structure for a multi-stage optimal control model with random switching time

Stefan Wrzaczek, Michael Kuhn and Ivan Frankovic ()

No 06/2019, ECON WPS - Vienna University of Technology Working Papers in Economic Theory and Policy from Vienna University of Technology, Institute for Mathematical Methods in Economics, Research Group Economics (ECON)

Abstract: The paper presents a transformation of a multi-stage optimal control model with random switching time to an age-structured optimal control model. Following the mathematical transformation, the advantages of the present approach, as compared to a standard backward approach, are discussed. They relate in particular to a compact and unified representation of the two stages of the model, the applicability of well-known numerical solution methods, and the illustration of state- and control dynamics. The paper closes with a simple example on a macroeconomic shock, illustrating the workings and advantages of the approach.

Keywords: optimal control theory; age-structured optimal control theory; multistage; random switch; catastrophic disaster (search for similar items in EconPapers)
Date: 2019
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