1977/06/01 by Finn E. Kydland, Edward C. Prescott · 5 citations
Economics, Econometrics and Finance · Decision Sciences · #Economic theories and models #Economic Theory and Institutions #Game Theory and Applications #Discretion #Economics #Function (biology) #Selection (genetic algorithm) #Position (finance) #Control (management) #Microeconomics #Social choice theory #Mathematical economics #Computer science #Political science #Finance #Law
paper · doi:10.1086/260580
openalex publication_date 1977/06/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/05
Even if there is an agreed-upon, fixed social objective function and policymakers know the timing and magnitude of the effects of their actions, discretionary policy, namely, the selection of that decision which is best, given the current situation and a correct evaluation of the end-of-period position, does not result in the social objective function being maximized. The reason for this apparent paradox is that economic planning is not a game against nature but, rather, a game against rational economic agents. We conclude that there is no way control theory can be made applicable to economic planning when expectations are rational.