Two-Stage Budgeting: A Difficult Problem

A Norman, J. Chou, Md Niaz Chowdhury, A. Dalal, M. Fortson, M. Jindal, K. Payne and M. Rajan

Computational Economics, 2001, vol. 18, issue 3, 259-71

Abstract: Utility maximization with a weakly separable utility function requires a consumer create an optimal budget for each separable subgroup. We show that computational complexity of optimal budgeting is the maximum of an exponential in the number of alternatives and a quadratic in the number of budget increments. From a budget survey of undergraduates we show that an undergraduate procedural consumer can obtain a budget estimate from the experience of previous students and can monitor the flow of funds and can make adjustments at a minuscule fraction of the calculations needed for optimal budgeting. Copyright 2001 by Kluwer Academic Publishers

Date: 2001
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