Book contents
- Frontmatter
- Contents
- Preface
- 1 Introduction
- 2 The theory of economic policy and the linear model
- 3 Optimal-policy design
- 4 Uncertainty and risk
- 5 Risk aversion, priorities and achievements
- 6 Non-linear optimal control
- 7 The linear rational-expectations model
- 8 Policy design for rational-expectations models
- 9 Non-cooperative, full-information dynamic games
- 10 Incomplete information, bargaining and social optima
- Notes
- References
- Index
5 - Risk aversion, priorities and achievements
Published online by Cambridge University Press: 17 September 2009
- Frontmatter
- Contents
- Preface
- 1 Introduction
- 2 The theory of economic policy and the linear model
- 3 Optimal-policy design
- 4 Uncertainty and risk
- 5 Risk aversion, priorities and achievements
- 6 Non-linear optimal control
- 7 The linear rational-expectations model
- 8 Policy design for rational-expectations models
- 9 Non-cooperative, full-information dynamic games
- 10 Incomplete information, bargaining and social optima
- Notes
- References
- Index
Summary
INTRODUCTION
The selection of one preferred policy package from a set of candidates involves the use of at least an implicit criterion. In policy studies, specifically those using optimal-control techniques, this criterion is made explicit. Yet a precise and realistic specification of the parameters defining the derivatives of an explicit-criterion function is extremely difficult. This difficulty is compounded by the fact that policy-makers have been reluctant, and usually unable, to specify their relative priorities in advance of a planning exercise. Typically they need to get a feel for how much they can or cannot expect to achieve; they need to establish the trade-offs available between policy goals, and the likelihood of not being able to reach them, in order to set the limits to policy-making and acceptable compromise.
If it is hard for policy-makers to set relative priorities in explicit numerical form, it is certainly no easier for their advisory staff. As we have pointed out, the specified objectives will be expressed in the form of an approximation to some generally unknown, or incompletely known, collective-preference function. This preference function is unknown partly because policy-makers are unable to give a full description of their relative priorities for all possible events, but also because they cannot know in advance the preferences, bargaining strengths or solutions acceptable to the other decision-makers who influence economic decisions. If other decision-makers are involved, then to ignore their influences on the final decision might introduce serious errors.
- Type
- Chapter
- Information
- Optimal Control, Expectations and Uncertainty , pp. 87 - 104Publisher: Cambridge University PressPrint publication year: 1989