Public policy, systemic resilience and viability theory

Girol Karacaoglu and Jacek Krawczyk ()

Metroeconomica, 2021, vol. 72, issue 4, 826-848

Abstract: Policy problems are typically formulated as optimization problems. Governments are conceptualized as optimizing agents. Risky situations are modelled as outcomes with known probabilities. Under ‘radical’ uncertainty, this model collapses because possible outcomes and their probabilities are unknown. Public policy must then build resilience to ‘unknown unknowns’. Viability theory offers a superior tool for such situations than optimization. The width of the viability kernel represents a mathematical expression for the degree of resilience to unknown shocks. Policy then aims at suitable investments that expand the viability kernel. We demonstrate the design of policy using viability theory with a simple model.

Date: 2021
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