The political model, which kind of decision making is used to find a collectiv decision? How can many interest be formed into a single interest? This were the question which would be answered be the political model. Economic actors are strategic i.e. they know that there is no social welfare planer, instead of this there is an individual which has it's own interests. Actors are forward looking, too. They know that their outcome from their choice today not only depends on today's politic.
2.2 Principal-Agent Problem
Why is there a Pricipal-Agent problem in politic?
Within large groups it's not possible to represent every interest exactly.
The voters elect the politican which is the nearst to their own opinion.
The principal-agent problem, both the principal and the agent have asymetric information and different interest. Without incentives agents wouldn't tell the principal informations. Therefore principal have to control the agent, for example through an electoral mechanism. The roles could be changed between
principal and agent in politic, sometimes the people is principal sometimes
agent. For example, a good which is provided by the goverment (principal) and
consumed by different types of citizen (agents). The goverment has to lower
the consumption of the low valuation consumer, so that the citizen which
valutate the good higger didn't try to cheat.
State variable, the state of the system (in a special point in time), is determined by the value of the stae variable (at this point in time).
Control variable, agents can select the control variable.
Transition equations, determine what happen if the system go from point t
to t+1.
Value function, it's the accumulated value from time zero until the end, it's expressed as a function of the state of the system in time zero.
Bellman equation
Solving equation be quesing a value and calculating until the point when one find a function which reproduces itself. An other way is to differentiat and to
find the point where the loss of utility from "one less unit" of consumption today is equal to the gain from "one more unit" capital which is saved. So we find an optimal path.
2.4 The overlapping Generations Model
In one of the simplest version of this model, the population dies after two periods and the whole economy ends. In each period a new generation is born, which were called the young, the generation which was born in the previously periode were called the old. The young have an endowment which cloudn't be transferd into the next period, such as youth or working power. The old have no income except their savings from their first period.
2.5 Effects on Uncertain Future politics
The actors didn't only take today's politics in account while deciding, they
also take their expectation about future policies. Today's policy provides information about the likelihood of future police.
Sascha Frank
Last modified: Wed Nov 16 18:58:59 MET 2005