Alternative Preference Functions in Problems of Investment Planning on the National Level

Abstract

Numerous features distinguish activity analysis from neo-classical economics. Of these, one can mention two outstanding ones: (i) the importance of an exact specification of the functional relationships customarily employed in an economic maximization problem, and (ii) the recognition that sharp equality relations are relatively rare in economics. This implies that inequality relationships are often crucial to a problem, including the special requirement of nonnegativity on variables such as prices and quantities. Exact specification of functions is necessary to ensure that a local maximum is also a global maximum, and further, that we should be able to compute the solution to a maximizing problem, rather than satisfy ourselves with the mere statement that a maximum exists. Much of the flexibility of the older techniques rested on paying insufficient attention to these features, which have been highlighted by recent discussions on activity analysis.