B3.14

Optimization and Control
Part II, 2004

The strength of the economy evolves according to the equation

x¨t=α2xt+ut,\ddot{x}_{t}=-\alpha^{2} x_{t}+u_{t},

where x0=x˙0=0x_{0}=\dot{x}_{0}=0 and utu_{t} is the effort that the government puts into reform at time t,t0t, t \geq 0. The government wishes to maximize its chance of re-election at a given future time TT, where this chance is some monotone increasing function of

xT120Tut2dtx_{T}-\frac{1}{2} \int_{0}^{T} u_{t}^{2} d t

Use Pontryagin's maximum principle to determine the government's optimal reform policy, and show that the optimal trajectory of xtx_{t} is

xt=t2α2cos(α(Tt))12α3cos(αT)sin(αt).x_{t}=\frac{t}{2} \alpha^{-2} \cos (\alpha(T-t))-\frac{1}{2} \alpha^{-3} \cos (\alpha T) \sin (\alpha t) .