WSEAS TRANSACTIONS on MATHEMATICS Constantin Udriste, Massimiliano Ferrara

Multitime Models of Optimal Growth∗

CONSTANTIN UDRISTE
University Politehnica of Bucharest
Department of Mathematics
Splaiul Indpendentei 313
060042, Bucharest
ROMANIA
udriste@mathem.pub.ro
MASSIMILIANO FERRARA
University Mediterranea of Reggio Calabria
Faculty of Law
Via dei Bianchi 2-Palazzo Zani
89100 Reggio Calabria
ITALY
massimiliano.ferrara@unirc.it

Abstract: Section 1 underline the limitations of standard multi-variable variational calculus and the sense of multi-
time. Section 1 formulates the controllability problem for a multiple integral functional or for a path independent
curvilinear integral subject to a multitime evolution of flow type. Section 2 describes a two-time optimal economic
growth modelled by Euler-Lagrange PDEs associated to a double integral functional or to a path independent
curvilinear integral in two dimensions. Section 3 motivates the optimal economic growth by two-time maximum
principles. Section 4 studies the two-time optimal economic growth with bang-bang policy based on a curvilinear
integral action.

Key–Words: multitime maximum principle, multitime optimal economic growth, bang-bang policy.

1 Multitime optimal control theory satisfying the complete integrability conditions

The interval [0, T ] = Ω0,T , in Rm with product or- ∂Xα ∂ca ∂Xβ ∂ca ∂Xα ∂Xβ
[Xα , Xβ ] = − + − α,
der, is called planning horizon. Geometrically, it is ∂ca ∂tβ ∂ca ∂tα ∂tβ ∂t
a hyperparallelepiped fixed by the diagonal opposite
points 0 and T . Consider a dynamic system evolving a = 1, ..., q.
over multi-time t = (t1 , . . . , tm ) ∈ Ω0,T and an agent Fixing the control variables at a given multi-instant t,
(planner) who has the task to control the evolution of the evolution of the state variables at point t are ob-
m-sheets. We assume T = (T 1 , . . . , T m ) has finite tained as solutions of the previous (PDE). Also given
norm, but sometimes we can relax this assumption. the value of the state at point t, the future values are
The dynamic behaviour of the system is described by determined.
the state variables x = (x1 , . . . , xn ) : Ω0,T → Rn , Controllability problem: We are allowed to act
x(t) ∈ SV (state variables). The planner knows the on the m-sheets of the (PDE) system by means of a
initial state of the system x(0) = x0 and the final state suitable control (included in the right hand side, in the
of the system x(T ) = xT (boundary conditions). boundary conditions, etc). Then, given a multitime
We accept that the state variables are affected t ∈ Ω0,T , and initial and final states, we have to find a
through a set of control variables c = (c1 , . . . , cq ) : control such that the solution matches both the initial
Ω0,T → Rq , c(t) ∈ CV (control variables). The state at multi-time t = 0 and the final one at multi-
planner knows the relationship between the actions time t = T .
taken and evolution of the states, which are summa- A way to choose properly the controls is to intro-
rized by a ”law of evolution” of the states, a (non- duce:
autonomous) PDEs system of the type 1) either a multiple integral functional
Z
∂xi I(c(·)) = L(x(t), c(t), t)dt1 ...dtm ,
(t) = Xαi (x(t), c(t), t) (P DE) Ω0,T
∂tα
i = 1, . . . , n; α = 1, . . . , m, 2) or a path independent objective functional
Z
defined by the vector fields J(c(·)) = Lβ (x(t), c(t), t)dtβ ,
Γ0,T
Xα : SV × CV × Ω0,T → Rn
where Γ0,T is a C 1 path joining the diagonal opposite
∗
points 0 and T .
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Each functional summarizes the values of any limk→0 fα0 (k) = ∞ to limk→∞ fα0 (k) = 0. In this
given sheet of states and control on extremal points way we obtain a two-time evolution
0, T . The function L (or the 1-form Lβ ) is called in-
stantaneous return or utility function (1-form). ∂k
(t) = fα (k(t))−(µα +nα )k(t)−cα (t), α = 1, 2.
The general control problem faced by the planner ∂tα
is Also we accept that this PDEs system satisfies the
max I(c(·)) or max J(c(·)) complete integrability conditions.
subject to Let us apply the multi-time Euler-Lagrange the-
ory: let D = (D1 , D2 ) be a constant positive rate
∂xi vector of future discount; let λα = µα + nα and
(t) = Xαi (x(t), c(t), t) (P DE)
∂tα gα (k) = fα (k) − λα k.
x(0) = x0 , x(T ) = xT , x(t) ∈ SV, c(t) ∈ CV.
2.1 Case of double integral functional
This kind of research started with [11], as appli-
cation of the theory from [6]-[9] to practical problems Let u(c) be the utility function which obeys the law
suggested by [3], [4]. On the other hand, the theory of diminishing marginal utility d2 u(c) < 0 (concave
in [6]-[9], [11]-[12] follows the point of view in [1]. ∂u
This theory can be extended for the PDEs in [4], [5], function), > 0. Maximize the functional
∂cγ
[10]. Z
λ
I(c(·)) = e−Dλ t u(c(t))dt1 dt2 , c = (c1 , c2 ),
Ω0,T
2 Two-time optimal economic
growth subject to

The theory of optimal economic growth starts with the ∂k

cα (t) = gα (k(t)) − (t),
following question: how much should be consumed ∂tα
and how much should be invested for future consump- k(0) = k0 , k(T ) = kT , 0 = (0, 0), T = (T 1 , T 2 ).
tion? To formulate an answer, we accept that the evo-
lution is 2-dimensional. That is why we introduce the Eliminating cα (t), we find the Lagrangian
following variables and functions:
t = (t1 , t2 ) = 2 - moment of the economical
λ
L(k(t), kγ (t), t) = e−Dλ t u(c(t)) =
effect; µ ¶
λ ∂k ∂k
K(t) = capital; = e−Dλ t u g1 (k(t)) − (t), g2 (k(t)) − 2 (t) .
L(t) = labour force; with partial growing at a ∂t1 ∂t
∂
constant exogenous rate nα , i.e., ln L = nα , The extremals are solutions of the multi-time Euler-
∂tα
α Lagrange equation
n t
α = 1, 2 or equivalently L = c1 e α ;
Yα = Fα (K, L) = homogeneous commodities ∂L ∂ ∂L
(production functions). − γ = 0.
∂k ∂t ∂kγ
Each commodity Yα (t) = Fα (K(t), L(t)) de-
composes as sum of consumed part cα (t), partial ve- It follows the PDEs system
∂K
locity of capital α (t) (further capital) and depreci- ∂ 2 u ∂cα ∂u dgγ
∂t + ( − Dγ ) = 0
ation capital µα K(t), where µα is a constant rate: ∂cα ∂cγ ∂tγ ∂cγ dk
∂K ∂k
Yα (t) = cα (t) + (t) + µα K(t), α = 1, 2. (t) = gα (k(t)) − cα (t).
∂tα ∂tα
The production functions Yα = Fα (K, L), as- First we obtain an equilibrium point (k ∗ , c∗ ) at
sumed homogeneous
µ ¶ of degree one, could be written ∂k ∂cλ
K K which α = 0, σ = 0. It follows
Yα = LFα , 1 = Lfα (k), k = . Putting ∂t ∂t
L L
Yα ∂u dgγ
yα = , it follows yα = fα (k), where each func- ( − Dγ ) = 0, gα (k(t)) − cα (t) = 0,
L ∂cγ dk
tion fα (k) is a strictly concave monotonically increas-
ing function of k, with slope fα0 (k) decreasing from which must produce k ∗ and c∗α = gα (k ∗ ).
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Second, an analytical solution is possible when ∂k

(t) = gα (k(t)) − cα (t).
fα (k) and u(c) are explicitly given. For example, ∂tα
fα (k) = aα k, i.e., gα (k) = (aα − λα )k, and u(c) = First we obtain an equilibrium point (k ∗ , c∗ ) at
c21 + c22 . Then the previous PDEs system is reduced to ∂k ∂cλ
which α = 0, σ = 0. It follows
∂t ∂t
∂c1 ∂c2 µ ¶
+ +c1 (a1 −λ1 −D1 )+c2 (a2 −λ2 −D2 ) = 0 ∂uβ ∂gγ
∂t1 ∂t2 − Dγ = aβ , gα (k(t)) − cα (t) = 0,
∂cγ ∂k
∂k
(t) = (aα − λα )k − cα (t).
∂tα which must produce k ∗ and c∗α = gα (k ∗ ).
A particular solution of the first PDE is Second, an analytical solution is possible when
fα (k) and uβ (c) are explicitly given. For example,
α
c1 (t) = c2 (t) = e−(aα −λα −Dα )t . fα (k) = aα k, i.e., gα (k) = (aα − λα )k, and

 1−ν
In the complete integrability conditions of the second  cβ

if ν > 0, ν 6= 1
PDEs, uβ (c) = 1−ν


 ln c if ν = 1.
2a1 − 2λ1 − 2a2 + 2λ2 + D2 − D1 = 0, β

we obtain the corresponding solution k(t). 3 Reformulation as an optimal

control
2.2 Case of path independent integral
functional Let us formulate the optimal growth as a multi-time
optimal control model (see [2], [6]-[9]) starting with
Let uβ (c) be the utility 1-form whose elements obey λα = nα + µα (constant population growth rates +
the law of diminishing marginal utility d2 uβ (c) < 0 constant depreciation rates).
∂uβ
(concave functions), > 0. Maximize the func-
∂cγ
tional
3.1 Case of double integral functional
Z For that we choose a rate of per capita consumption
λ
J(c(·)) = e−Dλ t uβ (c(t))dtβ , c = (c1 , c2 ), c(t) = (c1 (t), c2 (t)) which satisfies the multi-time
Γ0,T
growth law
subject to ∂k
(t) = fα (k(t)) − λα k(t) − cα (t), α = 1, 2
∂k ∂tα
cα (t) = gα (k(t)) − α (t),
∂t and which minimizes the functional
k(0) = k0 , k(T ) = kT , 0 = (0, 0), T = (T 1 , T 2 ). Z
λ
I(c(·)) = e−Dλ t u(c(t))dt1 dt2 .
Ω0,T
Eliminating cα (t), we find the Lagrangian 1-form
λ
The nonautonomous control Hamiltonian is
Lβ (k(t), kγ (t), t) = e−Dλ t uβ (c(t)) = λ
µ ¶ H = e−Dλ t (u(c) + q α (fα (k) − λα k − cα )) ,
λ ∂k ∂k
= e−Dλ t uβ g1 (k(t)) − (t), g2 (k(t)) − 2 (t)
∂t1 ∂t where the co-states variables pα (t) = q α (t)e−Dλ t
λ

mean the discounted values of additional investment.

that must satisfy the complete integrability conditions.
For an interior maximum with respect to the control c
The extremals are solutions of the multi-time Euler- ∂H ∂u
Lagrange equations we must have = 0, i.e., = pγ . The adjoint
∂cγ ∂cγ
∂Lβ ∂ ∂Lβ equation
− γ = aβ .
∂k ∂t ∂kγ ∂pα ∂H
=− = −(fα0 − λα )pα
It follows the PDEs system ∂tα ∂k
µ ¶ and transversality condition
∂ 2 uβ ∂cα ∂uβ ∂gγ
+ − Dγ = aβ p1 (t)n1 (t) + p2 (t)n2 (t)|∂Ω0,T = 0
∂cγ ∂cα ∂tγ ∂cγ ∂k
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are equivalent to uβ (c) = cβ , aα = const, cα (t) = per capita consump-

tions, ||T || = ∞ and that we use the path independent
∂q α curvilinear integral. Then
= −(fα0 − λα − Dα )q α ,
∂tα Z
λ
maximize J(c(·)) = e−Dλ t cβ (t)dtβ
q 1 (t)n1 (t) + q 2 (t)n2 (t)|∂Ω0,T = 0. Γ0,∞

subject to
These PDEs produce the same information as those in
the previous paragraph. ∂k
(t) = fα (k(t)) − λα k(t) − cα (t),
∂tα
3.2 Case of path independent integral where k = capital, and k(0) = k0 , Dα , λα are positive
functional constants.
The nonautonomous control 1-form is
For that we choose a rate of per capita consumption λ
c(t) = (c1 (t), c2 (t)) which satisfies the multi-time Sα = e−Dλ t cα + p(fα (k) − λα k − cα )
growth law λ
or, with the definition p(t) = q(t)e−Dλ t , we can
∂k write
(t) = fα (k(t)) − λα k(t) − cα (t), α = 1, 2
∂tα λ λ
Sα = e−Dλ t (1 − q)cα + e−Dλ t q(fα (k) − λα k).
and which minimizes the functional
We remark that the control tensor is linear in the con-
Z
tλ trol variables cα (t). Also we accept c̄α ≤ c∗α ≤
J(c(·)) = e−Dλ uβ (c(t))dtβ . fα (k), i.e., c̄α is the minimum level and fα (k) is
Γ0,T
the maximum level. The switching functions σα =
λ
The nonautonomous control 1-form is e−Dλ t (1 − q)cα shows that the optimal policy is to
choose
λ
Sα = e−Dλ t (uα (c) + q(fα (k) − λα k − cα )) ,    

 c̄α (= 0) 
  
 >1 
λ c∗α = 0 < cα < fα (k) if q = =1 .
where the co-states variable p(t) = q(t)e−Dλ t 
 
 
 <1 

fα (k)
means the discounted value of additional investment.
For an interior maximum with respect to the control c The dynamic state and adjoint systems are
∂Sα ∂uα
we must have = 0, i.e., = pδαγ . The adjoint
∂cγ ∂cγ ∂k
equation = fα (k) − λα k − c∗α (q),
∂tα
∂p ∂Sα ∂q
=− = −(fα0 − λα )p, p(T ) = 0 = −q β (fα0 − λα − Dα ),
∂tα ∂k ∂tα
which are solved after substituting the optimal control
is equivalent to c∗ = (c∗1 , c∗2 ).
Cases:
∂q
= −(fα0 − λα − Dα )q, q(T ) = 0. 1) The first bang-bang policy should be used
∂tα when q < 1, c∗α = fα (k) = cα max . The above dy-
namic system becomes
Of course, here we need the complete integrability
conditions. These PDEs produce the same informa- ∂k ∂q
tion as those in the previous paragraph. = −λα k, = (λα + Dα − fα0 (k))q.
∂tα ∂tα
In this way the capital stock decreases at 2-rate
α
4 Optimal economic growth with (λ1 , λ2 ), i.e., k(t) = ce−λα t .
2) The second bang-bang policy should be used
bang-bang policy when q > 1, c∗α = c̄α = cα min = 0. The multi-time
In this section we adapt the multi-time controllabil- dynamic system is
ity, observability and bang-bang principle [8] to the ∂k ∂q
context of this paper. For that, let us accept that = fα (k) − λα k, = (λα + Dα − fα0 (k))q.
∂tα ∂tα
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WSEAS TRANSACTIONS on MATHEMATICS Constantin Udriste, Massimiliano Ferrara

3) A singular control would be the appropriate [12] C. Udrişte, Multi-time Stochastic Control The-
policy if q ≡ 1, σα = 0. ory, Selected Topics on Circuits, Systems, Elec-
Acknowledgements. Partially supported by tronics, Control&Signal Processing, Proceed-
Grant CNCSIS 86/ 2007 and by 15-th Italian- ings of the 6-th WSEAS International Confer-
Romanian Executive Programme of S&T Co- ence on Circuits, Systems, Electronics, Con-
operation for 2006-2008. trol&Signal Processing (CSECS’07), pp. 171-
176; Cairo, Egypt, December 29-31, 2007.

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