Control Theory and Economic Policy Optimization: The Origin, Achievements and the Fading Optimism from a Historical Standpoint

Economists were interested in economic stabilization policies as early as the ۱۹۳۰’s but the formal applications of stability theory from the classical control theory to economic analysis appeared in the early ۱۹۵۰’s when a number of control engineers actively collaborated with economists on economic stability and feedback mechanisms. The theory of optimal control resulting from the contributions of mathematicians Lev Semenovich Pontryagin  and Richard Ernest Bellman in the late ۱۹۵۰’s was first applied successfully to models of economic growth in the ۱۹۶۰’s by the economists who were interested in discovering the optimality properties of economic growth trajectories. It is shown that the collaborations of control engineers with econometricians in the ۱۹۷۰’s on the computation of optimal state and control trajectories in econometric models were the earliest attempts to demonstrate the possibility of applying deterministic, stochastic and adaptive optimal control to the numerical solution of optimal economic policies. We have explained why the collaborations of control engineers with econometricians on formulating and computing optimum system design in macroeconomic optimal planning models failed and why the economic applications of optimal control theory have proved to be more productive in the analysis of optimality conditions in mathematical economics and not in the computation of optimal trajectories in econometric models.

Keywords:

Optimal Control Theory , Stochastic Control , Adaptive control , Economic Applications