Multicriteria Economic Policies: General Ideas and Some Previous Experiences

Abstract

As discussed in Chap. 1, the traditional approach to optimal economic policy, although theoretically robust and elegant, is problematic in terms of realism and practical implementability. Our claim is that policy design can be seen as a problem with multiple conflicting objectives, and our proposal is to address policy design combining MCDM techniques with a general equilibrium model. The argument is twofold: this combination provides a more realistic representation of real policy making and it can provide useful recommendations to decide how to use policy instruments in practice. This chapter presents a general setting to outline how to represent policy design as a multicriteria decision problem. Moreover, it also reports three previous applications of our methodological proposal for policy design with economic objectives. The first application uses multiobjective programming to identify efficient policies in terms of economic growth and inflation. The second application employs compromise programming (CP) to reduce the size of the eligible set of policies by focusing on efficient policies that are also as close as possible to the ideal point. The last application is performed at the regional level with data from Andalusia, and its aim is to determine the efficient configuration of subsidies across activity sectors.