Abstract
ABSTRACTSince the early 1970s there has been interest in the application of optimal control theory to the management of economic systems. Specifically, optimal control theory prescribes policy strategies which optimise a quantifiable policy preference function subject to market equilibrium conditions. Problems of this kind have been identified among agricultural markets and this paper aims to illustrate the application of optimal control theory to the British potato market. The paper takes evidence from policy makers to derive target values for the producer price, imports, and the changes in the quota area from year to year. The constraints on optimisation are specified in terms of a partial equilibrium econometric model which specifies, demand, supply and trade relationships. The policy preference function is specified as a quadratic and a ‘revealed preference approach’ is employed to estimate the parameters which penalise market equilibria which over or under‐shoot policy targets. The resulting optimal control problem is minimised by a dynamic programming routine. The results suggest that policy makers may benefit from taking dynamic effects directly into account when formulating policy strategies.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
