Dynamic optimal control of process-product innovation with learning by doing

In this paper, we present a dynamic optimal control model of process-product innovation with learning by doing, and extend the model of Chenavaz (2012) to an even more general model in which the firm's cost functions of product and process innovation depend on both the innovation investments and the knowledge accumulations of product and process innovation; furthermore, in our paper, the product price, the investments of product and process innovation are decision variables; the product quality, production cost, the change rates of knowledge accumulations of product and process innovation are state variables. The main objective of this paper is to analyze the relationships between these variables, and investigate the model's optimal conditions and characteristics. Further, we solve the model with some numerical examples, and sensitivity analysis is conducted to study the effect of changing the parameters and coefficients on the objective function value. (C) 2015 Elsevier B.V. and Association of European Operational Research Societies (EURO) within the International Federation of Operational Research Societies (IFORS). All rights reserved.