PONTIFICIAE ACADEMIAE SCIENTIARVM SCRIPTA VARIA ~

cerns time-horizons. Any discussion of how best to operate
the economy so as to achieve certain ends involves comparisons
over time and leads to a variational problem. In theory there
is no reason to stop at any particular point in the future and
so we are led to a consideration of an infinite time-horizon.
Valuable insights can be gained by this method, as in RAMSEY’s
theory of saving [34], but the weakness of the method from a
practical point of view is that it calls for knowledge that we
cannot possibly possess. This suggests that we should reformulate
 the problem with a finite, indeed fairly short timehorizon,
 a practice that is in fact adopted in all centrally planned
 economies.

c) Estimation. Having decided on the variables that are
to enter into the model and on the forms of the relationships
by which they are connected, the next thing to do is to estimate
the parameters in these relationships. This may be a matter
of simple arithmetic, as when an input-output coefficient is
estimated by dividing the input of product j into product &
by the output of product 2. So simple a method, however, is
only resorted to when there is an extreme shortage of information;
 more generally statistical methods, and in particular regression
 analysis, are involved. In any case the estimation
procedure that must inevitably be followed at the outset can
be described as the econometric analysis of past observations.
The methods of estimation available to econometricians have
improved very considerably over the last generation. In particular
 it has come to be realised from HAAVELMO’s original
paper on the subject [16] that the fact that an economy is a
system in which different influences may operate simultaneously
has a bearing on the appropriate method of estimating economic
relationships. This is called the problem of identification: in
relating the price of a commodity to the quantity of it sold, how
can we identify the parameter as a demand parameter, a supply
 parameter or some mixture of the two; alternatively, how
can we arrange our estimation procedure so that the estimate

1] Stone - pag. 12