Full text: Study week on the econometric approach to development planning

But the purpose of the simplified model is not to produce 
a decision or a design, but rather to establish plausible ranges 
of values for the design and operating parameters. When this 
has been done the second approach can be invoked. It de- 
pends on the fact that the elaborate calculations required to 
obtain a single point on the performance functions can be 
mechanized and thereby made quick and cheap. Thus although 
it may not be possible to write out these complicated functions 
explicitly, or even to manipulate them if written out, it is 
feasible to ascertain a finite number of points on any of the 
functions. Even these mechanical calculations may be quite 
elaborate. In particular, if there is a large stochastic element it 
may be necessary to simulate the operation of the investment 
over a substantial period of time in order to estimate a single 
point on the function. But such simulations are now feasible in 
the great majority of practical instances and are rapidly be- 
coming cheaper to carry out. 
Since it is possible to estimate points it is possible to estimate 
differences between points, i.e. first derivatives. And therefore 
it is possible to apply any one of a number of steepest ascent 
procedures to determine iteratively the solution to any of the 
problems I discussed earlier. I shall forebear to go into details 
since the procedures I have in mind are fairly well standardized 
and improved ones are appearing constantly. All the proce- 
dures have the property of producing the shadow prices re- 
quired for testing preassigned target level along with the so- 
lution for each target assignment. 
I do not wish to give the impression that the approaches 
[ have suggested solve all the problems of deciding on public 
investment. Far from it. This is a very difficult field with 
many, many open questions. To mention only two of the 
pressing controversial issues, there is the problem of chosing 
the social rate of discount, and the problem of incorporating 
uncertainty into decision criteria. Besides, many problems. 
remain to be solved with respect to the kinds of benefits that 
31 Dorfman - pag. 18

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