The Economic Gradient Method
The economic gradient method is designed to provide guidance for the analysis and recommendation of change when information is available only over so narrow a range as to preclude a credible calculation of the global optimum. Using as data the gradients of the relevant functions evaluated at the current point of operation, the procedure calculates the direction of change from the status quo that yields the greatest feasible local rate of increase in the objective function of the decision maker. The calculation should be viewed as a benchmark because proposed movements of practical size must be assessed for feasibility. Under structural assumptions (standard for second-order conditions), the procedure can also be used to obtain an upper bound on the gain from effecting any particular (nonlocal) set of feasible changes in the decision variables. In Section I, we present the economic gradient method in a general form. We specialize the formulae in Section II to apply to pricing under a budget constraint with aggregate consumer welfare as the objective function.' Pilot empirical applications to U.S. Postal Service and long distance telephone rates are summarized in Sections III and IV.
- Export
- BibTeX
- Sources
- openalex