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Decision Based Economic Theory

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  • Oskam, Arie J.
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    Abstract

    Decision based economic theory stresses the central position of the objective function in the behavior of economic agents. Insufficient knowledge of objective functions hampers the development of economic theory. In this article, a methodology for deriving objective functions from conscious decisions has been developed. Three categories of decisions are concerned: positive, negative, and mutually exclusive decisions. Assuming minimal inconsistency, the objective function can be derived by means of linear or nonlinear programming and using a revealed preference approach. The method has been applied to derive the linear objective function of EC dairy policy. However, applications of this methodology for consumers and producers are similar. A number of issues related to the formulation and interpretation of the objective function are discussed.

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    File URL: http://purl.umn.edu/14075
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    Bibliographic Info

    Paper provided by University of Minnesota, Department of Applied Economics in its series Staff Papers with number 14075.

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    Date of creation: 1988
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    Handle: RePEc:ags:umaesp:14075

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    Keywords: Political Economy;

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    1. Stiglitz, Joseph E, 1985. "Information and Economic Analysis: A Perspective," Economic Journal, Royal Economic Society, vol. 95(380a), pages 21-41, Supplemen.
    2. Herwaarden, F.G. van & Kapteyn, A.J., 1981. "Empirical comparison of the shape of welfare functions," Open Access publications from Tilburg University urn:nbn:nl:ui:12-364298, Tilburg University.
    3. Simon, Herbert A, 1978. "Rationality as Process and as Product of Thought," American Economic Review, American Economic Association, vol. 68(2), pages 1-16, May.
    4. Kapteyn, A.J., 1977. "A theory of preference formation," Open Access publications from Tilburg University urn:nbn:nl:ui:12-364727, Tilburg University.
    5. Van Praag, Bernard M. S. & Kapteyn, Arie, 1973. "Further evidence on the individual welfare function of income: An empirical investigatiion in The Netherlands," European Economic Review, Elsevier, vol. 4(1), pages 33-62, April.
    6. Johansen, Leif, 1969. " An Examination of the Relevance of Kenneth Arrow's General Possibility Theorem for Economic Planning," Economic Change and Restructuring, Springer, vol. 9(1-2), pages 5-41.
    7. Burton, Michael, 1985. "The Implementation of the EC Milk Quota," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 12(4), pages 461-71.
    8. Lopez, Ramon E., 1984. "Estimating labor supply and production decisions of self-employed farm producers," European Economic Review, Elsevier, vol. 24(1), pages 61-82.
    9. Burgess, David F., 1975. "Duality theory and pitfalls in the specification of technologies," Journal of Econometrics, Elsevier, vol. 3(2), pages 105-121, May.
    10. Appelbaum, Elie, 1978. "Testing neoclassical production theory," Journal of Econometrics, Elsevier, vol. 7(1), pages 87-102, February.
    11. Varian, Hal R, 1982. "The Nonparametric Approach to Demand Analysis," Econometrica, Econometric Society, vol. 50(4), pages 945-73, July.
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    Cited by:
    1. Fertő, Imre, 1998. "Az agrárpolitika politikai gazdaságtana I. A kormányzati politikák modellezése a mezőgazdaságban
      [The political economy of agrarian politics. Part I. Modeling of governmental policies in agr
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(3), pages 223-246.

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