Real Options 'in' Meta-Economic Systems: An Application of Systems Design Research to Problems in Public Policy

Abstract

This conceptual paper, the third of a series, continues the examination of the challenges faced by economic systems in the early 21st century. Where prior papers focused on inadequate approaches to modeling the firm as an economic system and to the potential dysfunctions created in modeling the economic system of the market using modern portfolio theory grounded in Keynesian neo-classical economics, this paper looks at issues in meta-economic theory, i.e. the philosophy of economic systems. It selects two meta-economic systems for consideration and further analysis, the Free Market Constitutional State and the Problem-Solving State. It describes them and presents a series of interrelated systemic problems that might be addressed using a real options in economic systems approach. It suggests possible methodologies that could be used to address these, and discusses whether or not the proposed approaches are capable of completing the assigned tasks and why. It concludes with avenues for future research.

Keywords: Economic Systems, Meta-Economic Systems, Public Policy, Uncertainty, Flexibility, Real Options

JEL Classification: L50, P10, P20, P41, P50