Design of optimal policies: A variable structure control approach

This paper introduces methods of variable structure control (VSC) theory to economists. The VSC design is based on closed loop optimal control solutions. It is shown that VSC can yield stable solutions in the presence of parameter errors whereas conventional closed loop optimal control solutions become unstable. The methodology is applied to a simple economic model.The authors wish to thank John Burkett and Berc Rustem for constructive comments on earlier versions of the paper.