Robust Control: A Note on the Timing of Model Uncertainty

In this note a one-state, one-control variable quadratic linear problem with robust control and discount factor is developed to examine the optimal response of the first-period control to changes in future model uncertainty. A change in future model uncertainty has an effect on the optimal first-period control response going in the same direction as the one caused by an equal size change in current model uncertainty. However, both analytical and numerical results show that such effect is much lower than the one derived from a change in current model uncertainty. Moreover, such effect is even much lower as the change in model uncertainty moves farther away into the future. Finally, the infinite horizon result confirms the reinforcing nature of the effects on the optimal first-period control response of current and future changes in model uncertainty. Copyright Kluwer Academic Publishers 2004