Study week on the econometric approach to development planning

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Monograph

Identifikator:: 1824422792

URN:: urn:nbn:de:zbw-retromon-217476

Document type:: Monograph

Title:: Study week on the econometric approach to development planning

Place of publication:: Amsterdam [u.a.]

Publisher:: North-Holland Publ. Co. [u.a.]

Year of publication:: 1965

Scope:: XLVII, 1259 S.; graph. Darst.

Digitisation:: 2022

Collection:: Economics Books

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Document type:: Monograph

Structure type:: Chapter

Title:: Decision rules and simulation techniques in development programming / Henri Theil, Nederlandsche Economische Hoogeschool - Econometrisch Institut Rotterdam - Nederland

Collection:: Economics Books

SEMAINE D'ÉTUDE SUR LE ROLE DE L'ANALYSE ECONOMETRIQUE ETC. 47°F not easy to find this maximizing strategy, but it is very simple when the preference function is quadratic and when the constraints are linear. The solution is found by applying the theorem of « first-period certainty equivalence », which in our case amounts to the following: the first-period decision of the maximizing strategy is identical with the first-period de: cision that would be made if the uncertainty aspect would be disregarded by replacing all random v’s by their expectations. This means that the problem is reduced, for the decision of the first year (x,) at least, to an ordinary conditional maximiz- ation problem: maximize the quadratic preference function (not its expectation) subject to the constraint (3.4) on the understanding that the vector s of this constraint is replaced by its expectation; i.e., in (3.6) we should replace the v’s by the expectations of the v’s. Clearly, this solves the uncertainty problem in an almost trivial way. For the second-period de cision (x,) one can proceed in precisely the same way one pe- riod later, because by that time the second period will have become the first. And so on (3). 5. THE MAXIMIZING STRATEGY The results mentioned in the preceding section can be re- garded as a separation of the decision problem in two suc- cessive steps: first maximize as if there is no uncertainty, then replace certain random variables in the result by their expectations. We shall start with the first step under the assumption that the horizon (T) is so large that it can be (*) The first-period certainty equivalence theorem is due to H.A. St MON [2] and was subsequently generalized by the present author [3, 4] For applications to a microeconomic (paint factory) case reference is made to C.C. Hort et alii [1]. For a more extensive discussion including several other applications. see the author's recent monograph [5]. "71 Theil - pag. 11

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