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Decision Based Economic Theory

  • Oskam, Arie J.
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    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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    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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    1. Stiglitz, Joseph E, 1985. "Information and Economic Analysis: A Perspective," Economic Journal, Royal Economic Society, vol. 95(380a), pages 21-41, Supplemen.
    2. 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.
    3. Varian, Hal R, 1982. "The Nonparametric Approach to Demand Analysis," Econometrica, Econometric Society, vol. 50(4), pages 945-73, July.
    4. 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.
    5. 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.
    6. Burgess, David F., 1975. "Duality theory and pitfalls in the specification of technologies," Journal of Econometrics, Elsevier, vol. 3(2), pages 105-121, May.
    7. 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.
    8. 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.
    9. Van Herwaarden, Floor G. & Kapteyn, Arie, 1979. "Empirical comparison of the shape of welfare functions," Economics Letters, Elsevier, vol. 3(1), pages 71-76.
    10. Appelbaum, Elie, 1978. "Testing neoclassical production theory," Journal of Econometrics, Elsevier, vol. 7(1), pages 87-102, February.
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