Rules Rather than Discretion: The Inconsistency of Optimal Plans

@article{Kydland1977RulesRT,
  title={Rules Rather than Discretion: The Inconsistency of Optimal Plans},
  author={Finn E. Kydland and Edward C. Prescott},
  journal={Journal of Political Economy},
  year={1977},
  volume={85},
  pages={473 - 491}
}
Even if there is an agreed-upon, fixed social objective function and policymakers know the timing and magnitude of the effects of their actions, discretionary policy, namely, the selection of that decision which is best, given the current situation and a correct evaluation of the end-of-period position, does not result in the social objective function being maximized. The reason for this apparent paradox is that economic planning is not a game against nature but, rather, a game against rational… Expand
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