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Multiple Criteria Decision Making and its Applications to Economic Problems ties Multiple Criteria Decision Making (MCDM)/Multiple Objective Optimization (MO) and economics together. It describes how MCDM methods (goal programming) can be used in economics.

The volume consists of two parts. Part One of the book introduces the MCDM approaches. This first part, comprising Chapters 1-5, is basically an overview of MCDM methods that can most likely be used to address a wide range of economic problems. Readers looking for an in-depth discussion of multi-criteria analysis can grasp and become acquainted with the initial MCDM tools, language and definitions.

Part Two, which comprises Chapters 6-8, focuses on the theoretical core of the book. Thus in Chapter 6 an economic meaning is given to several key concepts on MCDM, such as ideal point, distance function, etc. It illustrates how Compromise Programming (CP) can support the standard premise of utility optimisation in economics as well as how it is capable of approximating the standard utility optimum when the decision-makers' preferences are incompletely specified. Chapter 7 deals entirely with production analysis. The main characteristic throughout the Chapter refers to a standard joint production scenario, analysed from the point of view of MCDM schemes. Chapter 8 focuses on the utility specification problem in the n-arguments space within a risk aversion context. A link between Arrows' risk aversion coefficient and CP utility permits this task.

The book is intended for postgraduate students and researchers in economics with an OR/MS orientation or in OR/MS with an economic orientation. In short, it attempts to fruitfully link economics and MCDM.

Multiple Criteria Decision Making and its Applications to Economic Problems ties Multiple Criteria Decision Making (MCDM)/Multiple Objective Optimization (MO) and economics together. It describes how MCDM methods (goal programming) can be used in economics.

The volume consists of two parts. Part One of the book introduces the MCDM approaches. This first part, comprising Chapters 1-5, is basically an overview of MCDM methods that can most likely be used to address a wide range of economic problems. Readers looking for an in-depth discussion of multi-criteria analysis can grasp and become acquainted with the initial MCDM tools, language and definitions.

Part Two, which comprises Chapters 6-8, focuses on the theoretical core of the book. Thus in Chapter 6 an economic meaning is given to several key concepts on MCDM, such as ideal point, distance function, etc. It illustrates how Compromise Programming (CP) can support the standard premise of utility optimisation in economics as well as how it is capable of approximating the standard utility optimum when the decision-makers' preferences are incompletely specified. Chapter 7 deals entirely with production analysis. The main characteristic throughout the Chapter refers to a standard joint production scenario, analysed from the point of view of MCDM schemes. Chapter 8 focuses on the utility specification problem in the n-arguments space within a risk aversion context. A link between Arrows' risk aversion coefficient and CP utility permits this task.

The book is intended for postgraduate students and researchers in economics with an OR/MS orientation or in OR/MS with an economic orientation. In short, it attempts to fruitfully link economics and MCDM.

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CONTENTS

Preface = ⅴ

Chapter 1. Multiple Criteria Decision Making : An Introduction = 1

 1. Traditional Paradigm for Decision Making : Comments and Criticisms = 1

 2. An Illustrative Example = 3

 3. Some Basic Definitions = 5

 4. Two Intermediate Concepts : Pareto Optimality and Trade-Offs amongst Criteria = 7

 5. Multiple Criteria Decision Making : A Historical Sketch = 9

Chapter 2. Multiobjective Optimisation Methods = 11

 1. Basic Aspects = 11

 2. Techniques for the Generation of the Efficient Set = 13

 3. An Illustrative Example = 15

 4. Compromise Programming : Methodological Aspects = 19

 5. The Concept of Compromise Set : Yu's Theorem = 24

 6. Two Economic Examples of Compromise Models = 25

  6.1 Equilibrium of a Monopolist = 25

  6.2 The "Leisure-Work" Dilemma = 26

 Appendix = 29

Chapter 3. Satisficing MCDM Approaches : Goal Programming = 31

 1. Basic Aspects = 31

 2. Weighted Goal Programming(WGP) = 33

 3. Lexicographic Goal Programming(LGP) = 34

 4. The Sequential Method for Lexicographic Optimisation = 36

 5. Goal Programming Extensions = 41

 6. Some Critical Issues in Goal Programming = 42

 7. Two Economic Examples of GP Models = 46

  7.1 Satisficing Monopolist Equilibrium = 46

  7.2 A Satisficing Worker's Enterprise Equilibrium = 48

Chapter 4. Multiattribute Utility Approaches = 51-62

 1. The Concept of Multiattribute Utility Function = 51

 2. Utility Decomposition : Preferential and Utility Independence Conditions = 52

 3. Determination of Multiattribute Utility Functions = 55

 4. A MAUT Application = 56

 5. A Final Reflection = 61

Chapter 5. Miscellaneous Questions = 63

 1. Purpose = 63

 2. Some Comments on other MCDM Approaches = 63

 3. Links between Compromise Programming and Goal Programming = 65

 4. A Utility Interpretation of Compromise Programming and Goal Programming = 68

 5. Choosing a MCDM Technique : Some Considerations = 73

Chapter 6. A First Linkage : CP and Bi-Attribute Utility = 77

 1. Introduction = 77

 2. Utility Meaning of the Ideal Point = 78

 3. Preferences and the Compromise Choice = 84

 4. Economic Meaning of Approximation to the Ideal = 87

 5. A Bounding Model for Standard Individuals : The Case of the "Average" Investor = 89

 6. An Example of Portfolio Selection = 93

 7. The Case of a Decision-Maker with Particular Preferences = 97

 8. Some Conclusions and Comments = 100

Chapter 7. Joint Production Shadow Prices and the Three Optima Theorem = 103

 1. Introduction = 103

 2. Shadow Prices : A General Theorem = 104

 3. A Car-Truck Illustrative Example of Shadow Prices = 109

 4. Three Crucial Optima for an Industry = 110

 5. Anchor Values and Market Prices : An Introductory but Restrictive Link = 111

 6. A Less Restrictive Approach to the Anchor Value-Market Price Link = 113

 7. Industry's Equilibrium and the Best-Compromise Solutions = 114

 8. The Three Optima Theorem = 117

 9. Extensions = 121

 10. Conclusions = 122

Chapter 8. A Further Linkage : Multi-Attribute Utility in a Risk Aversion Context = 125

 1. Introduction. = 125

 2. Notation and Definitions = 126

 3. A Reminder on Utility Functions with Separable Variables and their Standard Optimisation = 127

 4. The CP Distance Form as a Utility Function = 129

 5. A Case of Health Care Management = 134

 6. Searching for the Structure of the Utility Functions = 138

 7. The Structure of Uni-Dimensional Utility Functions = 140

 8. Main Assumption = 141

 9. Economic Meaning of Parameters = 142

 10. A More Extensive Approach to Utility and the Compromise Linkage = 144

 11. Specification and Optimisation = 145

 12. The Illustrative Work-Leisure Dilemma Again = 147

 13. Selecting a Car from Utility Characteristics : A Multiattribute Case = 151

 14. Conclusions = 153

References = 155

Index = 159