Optimal growth models as Economic Planning Tools

Conclusion In the present paper, I have carried out an investigation into the form of models which would be suitable for economy-wide planning. Optimal growth models have usually been constructed in an abstract framework. Therefore, the economies for which optimal growth models would be suitable are not identified. I have shown that, because these models only embody purely physical constraints, they will, in general, only be suitable for totally controlled economies. The conclusion, establishing the general inapplicability of optimal growth models to non-controlled economies, is dependent on the view of economic planning which regards the economic structure, particularly the scope of government policy, as fixed prior to plan construction.The second half of the paper elucidates the nature of the planning process when planners take into account the economic structure of the economy which they are planning. I have deliberately chosen to show the planning process in an abstract context for a simple economy, because the object is not to describe how to plan a particular type of economy, but to describe a methodology of planning. In that methodology, there is a place for optimal growth methods but only after the planners have given utmost consideration to the particular features of the economy they are planning. In using that methodology, one finds that problems must be confronted which are hidden when optimal growth models are formulated in the usual manner. Thus, planning for an infinite horizon may be the planners' preferred method on some basic philosophical grounds but in fact in order to construct an implementable plan they may need to follow the uncontrolled sector and adopt a pragmatic finite horizon approach.This paper is a revised version of a chapter of my Ph.D. thesis at the University of Pennsylvania. I would like to thank my adviser, Don Green, for many helpful comments.