Toward the Integration of Policymaking Models and Economic Models

Practical economic policy is often shaped by non-economic considerations. However, economic models typically treat policy choices as exogenously specified. Similarly, strategic models of bargaining typically use simple, fixed models of economics, when they use any economic model at all. In reality, political and economic policies are entwined as each may affect the other. This paper outlines one approach to endogenizing some of the non-economic interactions which shape the choice and implementation of economic policies. Economic policies can have disparate impacts across different regions, industries, or social groups. While the criterion of Pareto-optimality can direct policymakers’ attention to the efficient frontier, there still remains the problem of weighing those disparate impacts to select a particular policy on the frontier. Understanding how different policymakers weigh the impacts differently is often key to estimating the range of plausible policy choices. The KAPSARC Toolkit for Behavioral Analysis (KTAB) is a platform that enables the modeling and analysis of collective decision making processes (CDMPs), such as the negotiations over different economic policies. Rather than present the full range of models which can be built from KTAB libraries, we focus this discussion on a series of simple models, beginning with the classic one-dimensional spatial model of politics (SMP). The SMP is then generalized to handle multiple dimensions with different sub-models of actor's behavior. Next, the model is extended to include non-deterministic outcomes. With this framework in place, we then describe an early trial application of KTAB which links bargaining with a simple economic model, thus providing an initial example of integrating the policymaking process and the economic consequences of policy choices. We build a very simple economic model to illustrate how a natural search process can generate strategically sophisticated economic policies.