Robust control in green production management

Abstract

<p style='text-indent:20px;'>This study proposes a robust control model for a production management problem related to dynamic pricing and green investment. Contaminants produced during the production process contribute to the accumulation of pollution stochastically. We derive optimal robust controls and identify conditions under which some concerns about model misspecification are discussed. We observe that optimal price and investment control decrease in the degree of robustness. We also examine the cost of robustness and the relevant importance of contributions in the overall value function. The theoretical results are applied to a calibrated model regarding production management. Finally, we compare robust choices with those in the benchmark stochastic model. Numerical simulations show that robust decision-making can indeed adjust investment decisions based on the level of uncertainty.</p>