Toward the Integration of Policymaking Models & Economic Models
About the Project
KAPSARC is developing the KAPSARC Toolkit for Behavioral Analysis (KTAB), an open source software platform, to support modeling and analysis of collective decisionmaking processes (CDMPs). KTAB is intended to be the standard platform for analyzing bargaining problems, generalized voting models, and policy decision-making. It is our intent to use KTAB to assemble the building blocks for a broad class of CDMPs. Typical models in KTAB will draw on the insights of subject matter experts regarding decision makers and influencers in a methodical, consistent manner; and then assist researchers to identify feasible outcomes that are the result of CDMPs.
The traditional economic approach to policy analysis is to utilize tools and methods developed within the field of economics and study the economic impact of one or more policies solely from an economic perspective. As a consequence, the “policies” are usually formulated and evaluated only by an assessment of the pure economic optimality of expected outcomes. Moreover, economic models typically treat policy choices as exogenously specified. Once policies are selected according to some exogenous process, then scenario analysis can be performed to simulate the economic impact of those policies.
On the other hand, explicit research into the policymaking process – and in particular models of the policymaking process, tend to oversimplify or ignore the economic outcomes of the policies debated among policymakers. In particular, modelers of what we broadly classify as collective decision making processes (CDMPs) – in other words, models that capture the process of political choice – tend to utilize simple, fixed models of economics, if any economic consideration is taken into account at all. The economic consequences, or the outcomes, of choices of actors are generally treated as the end points of models. The implications of policy choices, once arrived at, are typically left unexplored.
Either approach in isolation misses out on important interactions between political and economic phenomena. The economically optimal policy is rarely the option selected, and is often not even under consideration because of political considerations. Policies that may appear to be politically appealing at first blush can lose their charm once adopted, because of the economic impact upon attempts to implement them. In this paper, we argue that politics and economics are inextricably intertwined, and can be modeled as such. We develop a hybrid quantitative model of economics and CDMPs that allows us to capture the process of policymaking based on utilities derived from an endogenous economic model.
We develop this model with the KAPSARC Toolkit for Behavioral Analysis (KTAB), which is an open source platform for building CDMP models. All KTAB models represent stochastic decision-making among comparatively small numbers of actors or stakeholder groups – more than one, but less than hundreds – within the paradigm of Probabilistic Condorcet Elections (PCE). Even in formal voting situations, such as in government or boardrooms, informal influence-based negotiation is truly what drives voting – an obvious example of this is lobbyists influencing U.S. senators – so we need a negotiation model that captures this behavior. The PCE is a general framework for modeling this type of informal policymaking process; this framework is extremely flexible, and lacks restrictive assumptions present in others.
In this paper, to demonstrate our approach, we develop a CDMP based on the PCE, in which actors represent sectors in a Leontief economy. Each actor negotiates and forms coalitions so as to maximize its (the actor’s) utility. The data we used are synthesized from real data representing nine sectors and three actors of production in the U.S. economy from 1981. Applied to these data, our model demonstrates that strategically sophisticated economic policies can be generated using an integrated CDMP framework.