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Economic policy when models disagree

Barrieu, Pauline and Desgagne, Bernard Sinclair (2009) Economic policy when models disagree. Centre for Climate Change Economics and Policy and Grantham Research Institute on Climate Change and the Environment, 4. Centre for Climate Change Economics and Policy and Grantham Research Institute on Climate Change and the Environment, London, UK.

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Abstract

This paper proposes a general way to conceive public policy when there is no consensual account of the situation of interest. The approach builds on an extension and dual formulation of the traditional theory of economic policy. It does not need a representative policymaker’s utility function (as in the literature on ambiguity), a reference model (as in robust control theory) or some prior probability distribution over the set of supplied scenarios (as in Bayesian model-averaging). The method requires instead that the willingness to accept a policy’s projected outcomes coincide with the willingness to pay to correct the current situation. Policies constructed in this manner are shown to be e ective, robust and simple in a precise and intuitive sense.

Item Type: Monograph (Working Paper)
Official URL: http://www2.lse.ac.uk/GranthamInstitute/Home.aspx
Additional Information: © 2009 The Author
Library of Congress subject classification: H Social Sciences > HB Economic Theory
Journal of Economic Literature Classification System: C - Mathematical and Quantitative Methods > C6 - Mathematical Methods and Programming > C60 - General
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D80 - General
E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy Formation, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
Sets: Research centres and groups > Grantham Research Institute on Climate Change and the Environment
Departments > Statistics
Collections > Economists Online
Research centres and groups > Centre for the Analysis of Time Series (CATS)
Research centres and groups > Risk and Stochastics Group
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 4
Date Deposited: 26 Jul 2011 15:23
URL: http://eprints.lse.ac.uk/37607/

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