ST A T IC O P T IM ISA T IO N In previous chapters we have analysed the ways in which the objectives o f planning may be derived and have set out methods that enable us to assemble a picture of how the economy works, from which we may in turn infer the consequences o f pursuing alternative courses o f action. The next stage is to illustrate the ways in which we may deduce the ‘optimal’ plan. The aim, then, is to choose that plan from amongst the set of possib le plans that comes closest to meeting our planning objectives, given the con straints imposed by the economy. As we have seen , objectives may be expressed in different ways and, since it is also clear that the set o f possib le plans may be large or small it is perhaps not a great surprise to learn that there are many different types o f optim isation techniques that the planner may find it expedient to use. In this chapter, we look briefly at som e of the simpler techniques and give an indication of some o f the difficulties that such methods may encounter. H owever, before discussing these techniques, we look first at some instances in which the planner does not have to concern h im self explicitly with the question o f optimality. It was suggested in the previous chapter that, with the use o f
econometric methods, we could devise a representation o f the economy which might be used to trace the effects o f changes of various kinds through the econom ic system . In cases where the planner has such a model, and the government w ishes to choose a plan from amongst a small number o f alternatives, it will be poss ible for the planner to analyse each alternative in detail and present the government with a picture of how the economy is likely to look after the application o f each alternative. Planners in this case thus have a purely informative role, all their energies being absorbed in simulation activities. It is only in such rather rare worlds that planners have no hand in either devising the set o f plans that is to be subjected to analysis or in devising criteria that are used to reject plans that are known to be technically feasib le. In the condi-
tions referred to, the government applies the machinery used in society for making social choices and can, except in the unlikely event o f a tie, immediately pick the ‘optimal’ plan and proceed from there. N o optim isation techniques are employed in this case , the government simply applying a criterion o f optimality derived directly from the social-choice mechanism to the alternative plans with which it finds itself confronted. The plan so chosen may still be referred to as ‘optimal’ since, in all cases, social preferences are the appropriate source o f the optimality criterion. Often, o f course, it will be convenient for the planner to explicitly use information about preferences in his calculations, but the political system is likely to include safeguards of various kinds (such as external consultants) that are designed to ensure that the planner’s perceptions o f preferences are accurate. In many cases, it is likely that the government will not itse lf have
sufficient information to assemble a small range o f plans, such that it may be confident that this range contains the best conceivable plan. The planner will therefore face the task o f sorting out those sets o f plans to which he will devote attention. Past plans and past decisions, and presumably also details about current preferences, will generally be available for scrutiny and, provided that they exhibit a reasonably high degree o f consistency, the problem o f developing new plans may not be overwhelm ing. We will not be concerned here with the means that planners adopt in these early stages, but it is as well to be aware that there is likely to be considerable interaction betw een planner and government even at the very beginning o f the planning process. These difficulties should not be allowed to dom inate our d iscussion . The next stage is to look in a rather idealised way at the particular problems faced by the planner who has been asked to produce an optimal plan or a series o f possib le blueprints. In som e o f the cases, the planner will be given all the information he needs by the government before he performs any calculations at all. Of considerable importance will be the time dimension o f the
analysis. In the follow ing sections, we consider problems that differ in the degree to which the element of time has specifically to be accounted for. There are certain sorts o f planning problem , notably in the allocative area, in which the time dimension can be ignored without any serious consequences. Other problems have features that demand clo se attention being paid to dynamic fac tors. Stabilisation policy , for example, is an important aspect o f many econom ic planning problems and is , in its concern to eradi-
O p t i m i s a t i o n cate cyclical fluctuations, essentially a question of timing and dynamics. Growth policy is another planning area in which time is of the essence , for choices are being made between outcomes that are expressed in the form o f time streams. The techniques used in these different instances do, o f course, vary, although the added complexity o f dynamic analysis means that our treatment o f stabil isation and growth policies will be relatively more sophisticated than our treatment of allocative and allied static problems. The final cautionary note involves the fact that we will be looking at planning problems that can be solved in a relatively direct way; that is, the information to be used in the calculations will always be available from the start, and we will be looking at planning as if it comprised a single level. In reality, the econometric models that planners have, and the planning tasks they face, are likely to take the form of ‘modules’ that may for some purposes be treated independently, but often without it being clear what values other relevant variables outside the section in question will finally take.