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Robust Control and Hot Spots in Spatiotemporal Economic Systems

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  • W. Brock
  • A. Xepapadeas
  • A. Yannacopoulos

Abstract

We formulate stochastic robust optimal control problems, motivated by applications arising in interconnected economic systems, or spatially extended economies. We study in detail linear quadratic problems and nonlinear problems. We derive optimal robust controls and identify conditions under which concerns about model misspecification at specific site(s) could cause regulation to break down, to be very costly, or to induce pattern formation and spatial clustering. We call sites associated with these phenomena hot spots. We also provide an application of our methods by studying optimal robust control and the potential break down of regulation, due to hot spots, in a model where utility for in situ consumption is distance dependent. Copyright Springer Science+Business Media New York 2014

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  • W. Brock & A. Xepapadeas & A. Yannacopoulos, 2014. "Robust Control and Hot Spots in Spatiotemporal Economic Systems," Dynamic Games and Applications, Springer, vol. 4(3), pages 257-289, September.
    • Handle: RePEc:spr:dyngam:v:4:y:2014:i:3:p:257-289
    DOI: 10.1007/s13235-014-0109-z
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    Citations

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    Cited by:

    1. Anton Bondarev, 2019. "Robust Policy Schemes for Differential R&D Games with Asymmetric Information," Dynamic Games and Applications, Springer, vol. 9(2), pages 391-415, June.
    2. Bondarev, Anton, 2018. "Robust policy schemes for R&D games with asymmetric information," Working papers 2018/01, Faculty of Business and Economics - University of Basel.
    3. William Brock & Anastasios Xepapadeas & Athanasios Yannacopoulos, 2014. "Spatiotemporal robust control in infinite dimensional spaces," DEOS Working Papers 1405, Athens University of Economics and Business.
    4. William A. Brock & Anastasios Xepapadeas & Athanasios N. Yannacopoulos, 2014. "Robust Control of a Spatially Distributed Commercial Fishery," Dynamic Modeling and Econometrics in Economics and Finance, in: Elke Moser & Willi Semmler & Gernot Tragler & Vladimir M. Veliov (ed.), Dynamic Optimization in Environmental Economics, edition 127, pages 215-241, Springer.
    5. Bondarev, Anton & Krysiak, Frank C., 2017. "Temporary and permanent technology lock-ins in the quality-differentiated Bertrand competition," Working papers 2017/09, Faculty of Business and Economics - University of Basel.
    6. Anastasios Xepapadeas & Athanasios Yannacopoulos, 2018. "Spatially Structured Deep Uncertainty, Robust Control, and Climate Change Policies," DEOS Working Papers 1807, Athens University of Economics and Business.
    7. Anton Bondarev & Frank C. Krysiak, 2017. "Robust policy schemes for R&D games with asymmetric information," Working papers 2017/14, Faculty of Business and Economics - University of Basel.
    8. Phoebe Koundouri & Georgios I. Papayiannis & Athanasios Yannacopoulos, 2022. "Optimal Control Approaches to Sustainability under Uncertainty," DEOS Working Papers 2215, Athens University of Economics and Business.
    9. Athanasios Yannacopoulos & Anastasios Xepapadeas, 2013. "Climate Change Policy under Spatially Structured Ambiguity: Hot Spots and the Precautionary Principle," DEOS Working Papers 1332, Athens University of Economics and Business.
    10. Baltas, I. & Dopierala, L. & Kolodziejczyk, K. & Szczepański, M. & Weber, G.-W. & Yannacopoulos, A.N., 2022. "Optimal management of defined contribution pension funds under the effect of inflation, mortality and uncertainty," European Journal of Operational Research, Elsevier, vol. 298(3), pages 1162-1174.
    11. Georgios I. Papayiannis, 2022. "Robust Policy Selection and Harvest Risk Quantification for Natural Resources Management under Model Uncertainty," Papers 2202.05326, arXiv.org.

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    More about this item

    Keywords

    Stochastic control; Robust control; Riccati equation; Hot spot formation; Pattern formation; Hamilton-Jacobi Bellman equation; Distance-dependent utility; C6; R12; Q26;
    All these keywords.

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • Q26 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Recreational Aspects of Natural Resources

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