DECISION BASED ECONOMIC THEORY

Decision based economic theory stresses the central position of the objective function in the behavior of economic agents. Insufficient knowledge of objective functions hampers the development of economic theory. In this article, a methodology for deriving objective functions from conscious decisions has been developed. Three categories of decisions are concerned: positive, negative, and mutually exclusive decisions. Assuming minimal inconsistency, the objective function can be derived by means of linear or nonlinear programming and using a revealed preference approach. The method has been applied to derive the linear objective function of EC dairy policy. However, applications of this methodology for consumers and producers are similar. A number of issues related to the formulation and interpretation of the objective function are discussed.


Issue Date:
1988
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/14075
Total Pages:
41
Series Statement:
Staff Paper P88-38




 Record created 2017-04-01, last modified 2017-04-04

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