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June 1, 1977Journal of Political Economy

Rules Rather than Discretion: The Inconsistency of Optimal Plans

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Authors

FKFinn E. KydlandUniversity of California, Santa BarbaraEPEdward C. PrescottAustralian National University

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Implication

This theoretical analysis examines the limitations of discretionary policy in maximizing social objectives, implying a need for rule-based approaches.

Key Points

  • This work investigates why discretionary policies fail to maximize social objectives even with clear goals and rational expectations.
  • Theoretical analysis of discretionary policy versus rule-based decision-making
  • Discussion of the implications of rational economic agents on planning
  • Evaluation of control theory applicability in economic contexts
  • Discretionary policy does not maximize social objective functions despite fixed goals.
  • Economic planning should prioritize rules over discretion to align with rational expectations.
  • Control theory is inapplicable to economic planning when agents act rationally.

Cite This Study

Kydland et al. (1977) studied this question.

synapsesocial.com/papers/69b483dafa754ef7ec76e18ehttps://doi.org/10.1086/260580
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Also Consider

Synapse has enriched 3 closely related papers on similar clinical questions. Consider them for comparative context:

  1. 1Rational Expectations, the Real Rate of Interest, and the Natural Rate of Unemployment1973 · 535 citations
  2. 2On Rational Entrepreneurial Behaviour and the Demand for Investment1969 · 294 citations
  3. 3Adjustment Costs in the Theory of Investment of the Firm1968 · 556 citations