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Equilibrium theory and optimisation for public policy and industry regulation

Research project P5/21 (Research action P5)

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The objective of the project is to simultaneously develop analytical tools for economic equilibium analysis (first part) and use those tools in the fields of public policy (second part) and regulation (third part). Regarding the first part, we will develop further the strategic and mechanism design approaches to equilibrium theory in economics, and stress the normative dimension of the analysis and the possible use of optimisation methods. Regarding the second and third parts, we will examine various aspects of public decision, both at the micro and the macro level, and the regulation of both social and industrial organisations. Econometric models will be constructed to support the theoretical analysis.

In continuity with the previous IAP project, the general equilibrium perspective will be kept, but with further developments of game-theoretical features. This will include the integration of strategic behaviour (incentive constraints and market power effects) in general equilibrium and in macro-dynamics, and its consequences from a policy point of view. The strategic role of R&D and innovation will be emphasized. The regulation of various markets from an incentive point of view (such as markets for labour, insurance, financial or cultural goods and services) will be considered.

A new emphasis will be put on public economics. The representation of social welfare, for the design of optimal public policy, will be analysed in a new perspective. Equitable redistribution policies, taking into account notions of equal opportunity, will be studied in a general equilibrium framework. Incentive problems in public good production, including the protection of the environment, will be further analysed. Specific issues linked to individual behaviour (such as time-inconsistencies) and political feasibility considerations will be introduced.

Also, from a computational point of view, work in convex, nonlinear and discrete optimisation, will be further extended to allow for new economic applications in industrial organisation and industrial regulation, and to support the development of integrated planning and information systems. The main objects of investigation will be the network and utility industries, transportation, and supply chain management.

To increase the strength of our research group to tackle these extended tasks, new partners have been added (Namur and Gent). Inter-university collaboration with researchers in operations research is to be significantly increased in this programme. Also, the help of highly competent foreign partners (Aix-Marseille, Bergen, London, Toulouse) will be ensured by organising exchange of researchers on a regular basis. Young researchers will be involved in all activities.

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