Nonlinear two-level programming deals with optimization problems in which the constraint region is implicitly determined by another optimization problem. Mathematical programs of this type arise in connection with policy problems to which the Stackelberg leader-follower game is applicable. In this paper, the nonlinear bilevel programming problem is restated as a global optimization problem and a new solution method based on this approach is developed. The most important feature of this new method is that it attempts to take full advantage of the structure in the constraints using some recent global optimization techniques.
A method of constructing test problems for linear bilevel programming problems is presented. The method selects a vertex of the feasible region, 'far away' from the solution of the relaxed linear programming problem, as the global solution of the bilevel problem. A predetermined number of constraints are systematically selected to be assigned to the lower problem. The proposed method requires only local vertex search and solutions to linear programs.
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