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A new approach to solve non-regular constrained optimization problems. An application to optimal provision of public inputs

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  • A. Jesus Sanchez Fuentes

    () (Department of Economics, Universidad Pablo de Olavide)

  • Diego Martinez Lopez

    () (Centro de Estudios Andaluces and Department of Economics, Universidad Pablo de Olavide)

Abstract

This paper describes a new method for solving non-regular constrained optimization problems when standard methodologies do not work properly. Our method (the Rational Iterative Multisection Procedure, RIMP) consists of different stages that can be interpreted as different requirements of precision by obtaining the optimal solution. We have performed an application of RIMP to the case of public inputs provision under two tax settings. We prove that the RIMP and the standard Newton-Raphson (NR) method achieve the same results with regular optimization problems while the RIMP takes advantage over NR when facing non-regular optimization problems.

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File URL: http://www.upo.es/serv/bib/wps/econ0635.pdf
File Function: First version, 2006
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Bibliographic Info

Paper provided by Universidad Pablo de Olavide, Department of Economics in its series Working Papers with number 06.35.

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Length: 27 pages
Date of creation: Dec 2006
Date of revision:
Handle: RePEc:pab:wpaper:06.35

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Keywords: numerical analysis; constrained optimization; multisection; optimal taxation; public input.;

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References

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  1. Atkinson, Anthony B & Stern, N H, 1974. "Pigou, Taxation and Public Goods," Review of Economic Studies, Wiley Blackwell, vol. 41(1), pages 119-28, January.
  2. Ming Chang, 2000. "Rules and Levels in the Provision of Public Goods: The Role of Complementarities between the public Good and Taxed Commodities," International Tax and Public Finance, Springer, vol. 7(1), pages 83-91, February.
  3. James P. Feehan, 2002. "Distortionary Taxation and Optimal Public Spending on Productive Activities," Economic Inquiry, Western Economic Association International, vol. 40(1), pages 60-68, January.
  4. Sandmo, Agnar, 1972. "Optimality rules for the provision of collective factors of production," Journal of Public Economics, Elsevier, vol. 1(1), pages 149-157, April.
  5. Gaube, Thomas, 2000. "When do distortionary taxes reduce the optimal supply of public goods?," Journal of Public Economics, Elsevier, vol. 76(2), pages 151-180, May.
  6. Diego Martinez Lopez & A. Jesus Sanchez Fuentes, 2006. "On the optimal level of public inputs," Working Papers 06.34, Universidad Pablo de Olavide, Department of Economics, revised Mar 2008.
  7. Feehan, James P, 1989. "Pareto-Efficiency with Three Varieties of Public Input," Public Finance = Finances publiques, , vol. 44(2), pages 237-48.
  8. Pestieau, Pierre, 1978. "Public intermediate goods and distortionary taxation," European Economic Review, Elsevier, vol. 7(4), pages 351-357, May.
  9. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
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Cited by:
  1. Diego Martinez Lopez & A. Jesus Sanchez Fuentes, 2006. "On the optimal level of public inputs," Working Papers 06.34, Universidad Pablo de Olavide, Department of Economics, revised Mar 2008.

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