On the Dynamic Programming approach to economic models governed by DDE's

Abstract

In this paper a family of optimal control problems for economic models is considered, whose state variables are driven by Delay Differential Equations (DDE's). Two main examples are illustrated: an AK model with vintage capital and an advertising model with delay e ect. These problems are very di cult to treat for three main reasons: the presence of the DDE's, that makes them ifinite dimensional; the presence of state constraints; the presence of delay in the control. The purpose here is to develop, at a first stage, the Dynamic Programming approach for this family of problems. The Dynamic Programming approach has been already used for similar problems in cases when it is possible to write explicitly the value function V (Fabbri and Gozzi, 2006). The cases when the explicit form of V cannot be found, as most often occurs, are those treated here. The basic setting is carefully described and some first results on the solution of the Hamilton-Jacobi-Bellman (HJB) equation are given, regarding them as a first step to nd optimal strategies in closed loop form.