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Abstract
Since 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.