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Economic Policy when Models Disagree

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  • Pauline Barrieu
  • Bernard Sinclair-Desgagné

Abstract

This paper proposes a general way to craft public policy when there is no consensual account of the situation of interest. The design builds on a dual extension of the traditional theory of economic policy. It does not require 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 the Bayesian model-averaging approach). The obtained policies are shown to be robust and simple in a precise and intuitive sense. Ce texte propose une nouvelle approche du design des politiques publiques, quand il n'y pas de consensus entre experts sur une représentation adéquate de la situation. Techniquement parlant, nous adoptons pour ce faire une version généralisée de la théorie traditionnelle de la politique économique, telle que développée il y a plusieurs décennies par Jan Tinbergen. Contrairement aux solutions existantes à l'incertitude sur les modèles, notre approche ne demande pas de connaître la fonction d'utilité des décideurs politiques (à l'inverse de la littérature sur l'ambigüité), ni d'avoir un modèle de référence (par contraste avec la théorie du contrôle robuste), ni de posséder une distribution de probabilité sur l'ensemble des scénarios proposés (a contrario de l'approche bayesienne). Nous montrons que les politiques obtenues possèdent plusieurs propriétés que la littérature souvent postule a priori, comme la robustesse et la simplicité.

Suggested Citation

  • Pauline Barrieu & Bernard Sinclair-Desgagné, 2009. "Economic Policy when Models Disagree," CIRANO Working Papers 2009s-03, CIRANO.
  • Handle: RePEc:cir:cirwor:2009s-03
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    More about this item

    Keywords

    Model uncertainty; Theory of economic policy; Ambiguity; Robustness; Incertitude sur les modèles; théorie de la politique économique; ambigüité; robustesse;

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General

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