15

Kuhn -Tucker conditions

There is a systematic approach to inequality-constrained

maximisationa.k.a. concave programming or nonlinear programming.

Consider a version of the consumer problem in which

1

quasilinear utility x12 + 14 x2 is maximised subject to

x1 +x2 = 1. Mechanically applying the Lagrange multiplier/common slopes technique produces

3
x1
2

-4

-3

x2

-2

-1

p1x1 + p2x2 m 0
x1 0
x2 0
The aspect I emphasise is that the constraints are inequalities. We have seen how the Lagrange multiplier
method for dealing with one equality constraint extends naturally to the case of several constraints. If
we wish to maximise f (x) subject to g(x) = b and
h(x) = c, we work with the Lagrangian

-5

To be explicit the full set of restrictions for the 2 good

consumer problem is not p1x1 + p2x2 = m but

Negative quantity!

The tangency solution violates an unspoken economic

requirement x2 0.

L(x, , ) = f (x) [g(x) b] [h(x) c]

with a multiplier for each constraint. (See Dixit 24)
The inequality constrained optimisation problem (SH
682) is:

 Maximise the objective function f (x) where f :

Rn R
subject to the constraints gj (x) 0 where gj :
Rn R and j = 1, ..., m.

Terminology:

The set of points satisfying the

constraints is called the constraint set, admissible set
or feasible set. If at the optimum x, gj (x) = 0 then
the j-th constraint is binding ; if not, it is slack. If
at least one constraint is binding then x is on the
boundary of the feasible set; if none are binding x is
an interior point.
Example 15.1 In the consumer problems we have seen
the budget constraint is bindingall income is spent
because the consumer is never satiated. The constraint x2 0 may be binding as in the situation
pictured at the beginning of this section.

The method of Kuhn-Tucker multipliers is a variation

on the Lagrange multiplier method. If all the constraints are binding then the Lagrange method will
produce the same results as KT.
The Kuhn-Tucker approach involves forming the Lagrangean in more or less the usual way
L = f (x)

m
X

j gj (x)

j=1

with the same derivative with respect to the choice

variables conditions
L
= 0, i = 1, ..., n or L = 0.
xi
However the further conditions specify the interaction between the multipliers and the constraints. The
complementary slackness conditions state
j 0 f or all i
j = 0 whenever gj (x) < 0
If the constraint is slack the corresponding multiplier
is zero.

Solving this assortment of equalities and inequalities

in the n + m unknowns (choice variables and multipliers) is messier than the Lagrange method for equality
constrained problems.

c = 2 : x = 0

c = 0 : x = 0

To see how it works, consider a transparent case

c = 1 : x = 1
Example 15.2 Maximise the (strictly concave) function y = 1 x2 subject to x c. The optimal x can
either be interior (< c) or on the boundary (= c) of
the feasible setwhich will depend on the value of c.
The pictures show c = 2, 0, 1.

To do the Kuhn-Tucker analysis, form the Lagrangean

L = 1 x2 (x c).
The K-T conditions are
L
= 2x = 0 = 2x
x
0
= 0 if (x c) < 0

 (1x2)
Remark 15.1 The conditions L
=
= 0
x
x
and 0 imply that the derivative at the maximum
cannot be negative. It is obvious that the derivative
cannot be negative at a maximum because a reduction
in x (this is always feasible) would then raise the value
of the objective.

Remark 15.2 Often the Kuhn-Tucker conditions are

used not for finding a solution but for providing information about a solution. For example in the general
problem of maximising a strictly concave function subject to x c, the conditions imply that at a maximum
the slope cannot be negative.

Now for the three examples, c = 1, 0 and 2.

c = 1 : there are 2 possibilities: x = 1 or
x < 1. The latter is impossible for it would
imply that = 0 and hence x = 0, a contradiction. So x = 1.
c = 0 : there are 2 possibilities: x = 0 or x < 0.
As before the latter is impossible. All the conditions are satisfied when x = 0.
c = 2 : there are 2 possibilities: x = 2 or x < 2.
The former is impossible for it makes 2x and
hence negative.

16

Kuhn -Tucker theorem

There are lots of propositions linking the Kuhn-Tucker

conditions to the existence of a maximum. The conditions can be interpreted as necessary conditions for
a maximum (compare the treatment of Lagrange multipliers in 8.2). Or, making strong assumptions about
f and gj , as sucient conditions. That line is taken
in the next theorem.

Theorem 16.1 ( Kuhn-Tucker suciency) Consider the

inequality constrained optimisation problem with concave objective and convex constraints: i.e. to maximise f (x) (where f : Rn R) subject to the constraints gj (x) 0 where gj : Rn R and j =
1, ..., m. Define L = f (x)

m
P

j=1

j gj (x) and let x

be a feasible point. Suppose we can find numbers

j such that L(x) = 0, j 0 f or all i and
j = 0 whenever gj (x) < 0.
Then x solves the maximisation problem
Proof. Since f is concave the supporting hyperplane
theorem takes the form
f (x) f (x) + f (x)(x x).

Using L(x) = 0, we can write this as

f (x) f (x) +

j gj (x)(x x).

The aim is to show that the sum term on the right is

not positive.

The multipliers associated with slack constraints will

be zero so we need only attend to the binding constraints gj (x) = 0. In such cases, since gj is convex
we have
0 gj (x) 0 + gj (x)(x x).
Because the j are nonnegative,
is not positiveas required.

j gj (x)(xx)

Remark 16.1 Like Lagrange multipliers these KuhnTucker multipliers can be interpreted as measures of
the sensitivity of the maximum value to changes in the
constraint (10.2) but we wont go into the details. See
SH 696.

Remark 16.2 This theorem can be extended to apply

to quasi-concave objective functions. Dixit 97 discusses the extension.

17

Quasi-linear utility again

Return to the quasi-linear utility case and now incorporate all the inequality constraints and include prices
and income
Maximise u(x)
s.t. p1x1 + p2x2 m
x1
x2

The Lagrangean L is

1
x2

= 1 + x2, > 0
0,
0,
0.

1
x 2 +x

2 0(p1x1 +p2x2 m)1 (x1 )2 (x2 )

The Kuhn-Tucker conditions are

L
x1
L
x2
0, 1, 2
0(p1x1 + p2x2 m)
i(xi)

1 12
= x1 0p1 + 1 = 0
2
= 0p2 + 2 = 0
0
= 0
= 0, i = 1, 2.

1. Because the objective function is strictly increasing

in x1 and x2 the budget constraint is binding so 0 >
0.
2. The constraint x1 0, cannot bind for then
1
1 x 2
2 1

would be infinitely large. So 1 = 0.

3. The other constraint may or may not bind. Putting

this information about the budget constraint and 1 =
0 into the Kuhn-Tucker conditions:
L
1 1
= x1 2 0p1 = 0,
x1
2
L
= 0p2 + 2 = 0,
x2
(p1x1 + p2x2 m) = 0,
2(x2) = 0.

Consider the possibility x2 = 0 : from the budget

constraint we get
m
x1 =
p1

and so

! 1
2

!1

L
1 m
=
x1
2 p1

1
1
0 =
2 p1m

0p1 = 0

It is reasonable that the consumer always consume

some of the first good because marginal utility w.r.t.
it approaches infinity as x1 0 while marginal utility
w.r.t. the other good is constant at .

L = 0
Putting this value into x
2

1
L
1
=
x2
2 p1m

!1
2

p2 + 2 = 0

But as 2 0 it must be the case that when x2 = 0,

satisfies

1 p22

2 p1m

!1
2

So small values of produce a corner solution.

The interior solution x1, x2 > 0 is associated with
larger values of and corresponds to the case 1 =
2 = 0.)

18

Dynamic optimisation

In dynamic optimisation a time-path is chosen. Simple dynamic optimisation problems can be treated by
the same methods as the static optimisation problem. However dynamic problems have special features
which often suggest a dierent treatment.

Example 18.1 Consider a simple T -period problem where

a given stock b0 is consumer over T periods (formally

a variation on the consumer problem with logarithmic

utility)
max U(x) =
x

T
X

t1 ln xt

One dierence between static and dynamic optimisation is that dynamic equations appear naturally in the latter.

t=1

s.t.

T
X

xt = b0 (f ixed)

(*)

A second dierence is that multiple constraints

(one for each time period) are routine.

t=1

Form the Lagrangean

L(x, ) =

T
X

t=1

t1 ln xt (

T
X

t=1

xt b0)

and go through the usual steps to obtain a solution

that involves
xt = xt1 for t = 2, ..., T
This kind of dynamic equation is called a dierence
equation and is characteristic of the discrete time formulation. If the problem were formulated in continuous time a dierential equation would appear at this
point. In more complicated problems diagonalising
methods are used for investigating the properties of
the solution.

Example 18.2 (continues Ex. 18.1) In complicated problems it is usually convenient to specify a budget constraint for each time period. Thus the constraint (*)
would appear as:
bt = bt1 xt, t = 1, ..., T ; b0 f ixed

(**)

This law of motion describes how the available chocolate stock evolves: the bars of chocolate left over at
the end of period t equals the bars available at the end
of t 1 less what has been consumed in period t. (*)
collapses these dynamic equations into one constraint
T
P

t=1

xt = b0, eliminating the b1, b2, ..., bT .

The Lagrange method extends to multiple constraints

by introducing a multiplier for each constraint. Thus
here
L(x, ) =

T
X

t=1

t1 ln xt

T
X

t=1

t(xt bt bt1).

There are 2T equations to solve: T of the form Lt = 0

and T making up (**).
Just as there is a sequence {x1, ..., xT } there is a sequence of multipliers {1, ..., T }. The usual algebra
produces conditions like

xt
= t1 .
xt1
t
We already know that xt = xt1 and it turns out
that t is the same for all time periods.
A third dierence between static and dynamic
optimisation is the existence of specialised techniques for treating the latterincluding (Pontryagins) maximum principle and dynamic programming.

18.1

Maximum principle

The maximum principle is widely used in Macroeconomics, usually in its continuous time form. I will go
through a discrete time version to suggest where the
coninuous time forms come from.
A fairly general formulation covering the chocolate
stock example and extensions to include production
and investment involves the choice variables c(1), ..., c(T );
these symbols are easier on the eye than c1 etc.
The notation reflects the terminology of control theory. There is a state variable s governed by an equation of motion or state equation. The problem is to
choose a control variable sequence c to maximise a
value function. This may involve one or both of the
state variable and the control variable.
max V (s, c) =
c

T
X

t=1

v(s(t), c(t))

s.t. s(t + 1) s(t) = f (s(t), c(t))

(***)

for t = 1, ..., T and with s(1) and s(T + 1) fixed at

s1 and sT +1 respectively. (Other end conditions are
possible.)
The Lagrangian is
L =

T
X

v(s(t), c(t))

t=1
T
X

t=1

(t) [s(t + 1) s(t) f (s(t), c(t))]

These conditions can be obtained as first order conditions involving a new function H (Hamiltonian) defined for all t by
H(s(t), c(t), (t)) v(s(t), c(t)) + (t)f (s(t), c(t).

Dierentiating w.r.t. c(t) and s(t)

H
= 0, t = 1, ..., T
c(t)
H
, t = 2, ..., T
(t) (t 1) =
s(t)

18.1.1

In continuous time

In optimal control the s are called co-state variables.

Dierentiating w.r.t. c(t) and s(t) (writing partial
derivatives using subscripts) the first order conditions
are

In the more usual continuous time formulation the

problem is to choose the time path of consumption
c(t) to maximise
V

vc(t) + (t)fc(t) = 0, t = 1, ..., T

vs(t) (t 1) + (t) + (t)fs(t) = 0, t = 2, ..., T

ZT

v(s(t), c(t))dt

s.t

ds
= f (s(t), c(t))
dt

The first order conditions for a maximum are conditions on the partial derivatives of H,
H(t, s(t), c(t), (t)) = v(t, s(t), c(t))+(t)f (t, s(t), c(t))
The first order conditions are
H
= 0
c
d
H
=
.
dt
s
Example 18.3 Logarithmic chocolate in continuous time.
Choose a consumption path x(t) to maximise
U(x(t)) =

ZT

ln x(t)etdt

subject to (writing k for the stock)

.

k = x
k(0) = given
k(T ) = f ree
In this case the chocolate stock is the state variableits
derivative appears in the constraintand consumption

is the control variable. The choice of labels may not

seem very naturalyou control the chocolate stock by
consuming chocolate. In this example the state variable does not appear in the objective function.
The Hamiltonian is
H(t, k(t), x(t), (t)) = ln x(t)et (t)x(t)
The first order conditions are
.
H
= x(t)
k =

.
H
=
=0
k
H
et
=
(t) = 0
x
x(t)
.

The second condition = 0 is so simple because k

does not appear in the Hamiltonian; it implies that
(t) is constant So from the third condition
x(t) et
The time path of consumption is exponentially declining
and so is the chocolate stock.

THE END