Product and Quality Innovations as a Distributed Optimal Control Problem

This paper introduces the distributed optimal control model which combines quality-improving and variety-enhancing innovations of hetero-geneous type. Each newly invented product has its own dimension of quality and its characteristics are di erent from other invented products.The single agent is optimizing his stream of investments into the process of creation of new products together with investments into the improvement of already invented products. The role of heterogeneity of the investment characteristics of these new products is analyzed and it is demonstrated that this heterogeneity plays the essential role in the dynamics of the model