The optimization of an interconnected system with multiple decision makers

Abstract

This article discusses the multiplicity of decision makers in an optimization issue of a nonlinear interconnected system. For this purpose, we take a multicountry system in view of the importance for practical application, in which each country model is interconnected with other country models, and within the country, it is again decomposed into several subsystems. On considering the multiplicity of decision makers in the multicountry system one could distinguish the national government as decision maker at a country level. Secondly, one could also see several decision makers within the country. Then multiplicity means: • (i) Difference of the objective function of a decision maker. • (ii) Difference of the action of a decision maker. • (iii) Difference of the model of a decision maker. Under these circumsances of multiplicity of decision makers and of interconnectness of a multicountry system, we will deal with a nonlinear optimization issue in the context of mathematical programming. As an example of numerical computation, we take a simple econometric model which describes the Great Recession of US economy. The multiple decision makers are the central government as fiscal authority, and the Federal Reserve Board as the monetary authority.