General Framework: Policy Making as a Problem with Multiple Criteria

This chapter underlines some limitations of the traditional approach to public policy making. First, it is troublesome to find an expression for a social welfare function because of information requirements and the technical difficulties associated with the aggregation of preferences. Second, observed policy practice does not appear to be consistent with the existence of a well-defined social welfare function. On the contrary, policy design seems to be targeted to the improvement of economic performance as measured by a number of conflicting indicators. Based on this evidence, we set out to provide an alternative, more pragmatic approach to policy making. In this chapter we introduce a recent line of research that we have developed in which policy design is modelled as a decision problem with several objectives using multiple criteria techniques. This approach requires a structural model of the economy, such as a computable general equilibrium model, some multicriteria techniques to address the policy design problem and to identify the key set of policy instruments and policy objectives. All these elements are analysed and developed throughout the rest of the book.