Newton-type method for bilevel programs with linear lower level problem and application to toll optimization

Abstract: We consider a bilevel program involving a linear lower level problem with left-hand-side perturbation. We then consider the Karush-Kuhn-Tucker reformulation of the problem and subsequently build a tractable optimization problem with linear constraints by means of a partial exact penalization. A semismooth system of equations is then generated from the later problem and a Newton-type method is developed to solve it. Finally, we illustrate the convergence and practical implementation of the algorithm on the optimal toll-setting problem in transportation networks.