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Assignment policy (Economic Policy)

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Assignment Problem (Economic Policy)[edit]

Allocation of resources through the maintenance of the government budget. (Fiscal Policy)

Assignment problem is an economic problem where the main focus is to allocate resources to a range of activities in order to reduce total costs or expand total profits.[1]

Assignment problem occurs due to available resources having their own exclusive ways of performing different activities, which varies costs, profits and losses. Examples of assignment problems being utilized are assignments of workers to different work stations such as the line-production of fast food employees.[2] Governments also face these assignment problems and can solve it through the implementation of economic tools such as monetary and fiscal policies to achieve the desired economic objective levels.[3] For example, the main instruments for monetary policies are interest rates and the control of the money supply[4]. Economic theory and real-world evidence suggests that these instruments are closely linked to the inflation rate, hence, the assignment rule would state that inflation control is the main objective that monetary policies can target. [5]

Formal Definition[edit]

An “assignment problem” in economics can be solved by finding the most optimal way to allocate economic resources within the market, which cannot realistically be shared between two locations or sectors, nor easily moved between them.[6]

Assignment problems is analysed by the various cost-benefit options [7] for the allocation of resources. The costs and benefits depend on the exact problem, and there may also be hard restrictions limiting available options (it may not just cost too much to put something somewhere, it may in fact be illegal, or impractical)[8]. The goal is to arrive at an optimal or near-optimal answer in an acceptable time-frame.

The assignment problem can be understood as the distribution of rights to the individuals and groups of a society[9]. This general interpretation can be explained through three different examples i) the allocation of property rights to individuals, i.e. households, and to firms[10], ii) the allocation of decisions rights to the government relative to the private sector[11], and, iii) the attribution of policy instruments to economic policy agents. i.e. Central Bank, and Trade Unions.[12]

We can think of the assignment problem as an optimising problem in which decision rights are allocated in such a way that a goal function is maximised. In this fundamental issue of institutional economics, the goal function is complex, as it includes values such as Human Development Index as well as measurable goals such as GDP Growth and Inflation, which often causes a conflict in objectives.[13]

Economic Tools (Monetary and Fiscal Policy)[edit]

Economy of China
GDP14,172.20 Billion
GDP rank2
GDP growth
GDP per capita
GDP per capita rank

All values, unless otherwise stated, are in US dollars.

Economic policies are a set of rules and regulations set out by the government in order for them to control the behavior of the economy[14]. These rules and regulations generally comprises of two main tools, fiscal policy, which are decisions about the government’s budget about spending and taxation, and monetary policy, which involves instruments like interest rates, to manage the supply of money in circulation.

Monetary policy have been the main tool that governments have used to observe the economy's stance.[15] Through low interest rates, monetary policies stimulate the economy by offering individuals and businesses a low price to borrow and spend, ultimately leading to GDP growth. Conversely, a high interest rate would deter consumers from doing so, allowing this to be a tool to control inflation, a negative consequence from a rapidly economy.

Open market operations, reserve requirement regulations, and discount rates are the main monetary instruments that the federal government uses to control the money supply[16]. Open market operations enables the government to buy and sell bonds to the market which directly influences the money supply in circulation. Reserve requirement regulations directly influences the money created as it regulates banks to hold a certain amount of reserves, thus preventing them from loaning out more than they can afford.[17] The Fed can also change the discount rate, the rate which major financial institutions borrows at, which aims to revise the short-term interest rate due to market forces.

On the other hand, fiscal policies aim to allocate its spending into different industries efficiently whilst maintaining enough revenue to do so. The main instruments that are used are changes in government spending decisions and regulations of the taxation rates.[18]

If economic growth levels aren’t as desired, governments may reduce tax rates or turn to ‘stimulus spending[19]’, giving individuals or businesses in the economy an incentive to spend, mainly by giving them monetary incentives. ‘Deficit spending[20]’ occurs when there are not enough tax receipts to pay for the spending increases and governments turn to borrowing money, usually through issuing debt securities. Vice Versa, if an economy is growing too rapidly, governments may increase tax on individuals, which negatively affects the demands of goods and services in the economy. Influencing economic conditions through fiscal policy is one of the core principles of Keynesian economics. Consequently, if the economy is near full capacity, expansionary fiscal policy may result in inflation. [21] This inflation deteriorates corporation profits in competitive industries as well as individuals on a fixed income.

Economic Objectives[edit]

GDP Growth of Pakistan from 2012-2018.

Economic objectives are targets that the government wants to achieve[22]. There are many objectives that they try to achieve, with the main objectives being;

1.      Economic growth: Incomes of all consumers and firms (after accounting for inflation) are increasing over time.

2.      Full employment: Every member of the labour force who seeks work is able to find work.

3.      Price stability: Prevent large increases in the general price of goods and services known as inflation, as well as decreases in the general price level known as deflation.

However, in most cases, there will always be a conflict of trying to achieve these objectives, a case of assignment problem. One of the main conflicts are with economic growth and price stability, also known as inflation[23]. This is a similar conflict as unemployment and inflation [24] where a rapidly growing economy will typically face inflationary pressures due to demand being greater than supply. Hence, greater aggregate demand would cause businesses and firms to have difficulty in employing sufficiently skilled labour, resulting in a shortage of labour, ultimately leading to a wage-price spiral.[25]

Another conflict amongst objectives can be shown through economic growth with economic degradation[26]. Past experiences have shown that a higher GDP growth usually results in higher levels of pollution due to consumption on non-renewable resources such as the burning of fossil fuels. This can be avoided through the implementation of natural resources such as wind and solar energy.[27]

Ultimately, the assignment problem correlates with these objectives as governments will need to assign economic tools to efficiently manage these objectives. In this case, governments may use the 'dual-mandate' approach[28], where they target two objectives simultaneously, or the 'hierarchical mandate[29]' approach, where they prioritise an objective over another.


Example of resource allocation being divided between different individuals.

An example of the assignment problem is the government allocating its budget into different industries, in order to achieve the maximum output. The Australian government recently announced a $100 billion transport infrastructure investment in the next decade in order to improve delivery times and help workers get to job sites quickly.[30] The government simultaneously announced that they will be making tax cuts to working Australians and small-medium businesses whilst making sure that multinational corporations are paying their fair share as a plan to promote strong economic growth and record job creation. [31]

Another example of assignment problem in the workforce is the allocation of resources within an enterprise[32] ie. Funds may be split between different departments of an enterprise.


  1. Siebert, Horst (2001). Beiträge zur Mikro- und zur Makroökonomik. Springer, Berlin, Heidelberg. ISBN 978-3-642-62679-1. Search this book on
  2. Ritt, Marcus; Costa, Alysson M.; Miralles, Cristóbal (2016-02-01). "The assembly line worker assignment and balancing problem with stochastic worker availability". International Journal of Production Research. 54 (3): 907–922. doi:10.1080/00207543.2015.1108534. ISSN 0020-7543.
  3. Emery, Timothy J.; Gardner, Caleb; Hartmann, Klaas; Cartwright, Ian (2016-11-01). "The role of government and industry in resolving assignment problems in fisheries with individual transferable quotas". Marine Policy. 73: 46–52. doi:10.1016/j.marpol.2016.07.028. ISSN 0308-597X.
  4. "Monetary Policy Basics". Retrieved 2019-05-22.
  5. "Monetary Policy".
  6. Gokarn, Subir (2013-07-14). "The assignment problem". Business Standard India. Retrieved 2019-05-22.
  7. "Cost–benefit analysis | economics". Encyclopedia Britannica. Retrieved 2019-05-22.
  8. "Unit 12 Markets, efficiency, and public policy". Retrieved 2019-05-22.
  9. "Allocation of Property Rights (With Diagram)". Economics Discussion. 2016-06-28. Retrieved 2019-05-22.
  10. "Allocation of Property Rights (With Diagram)". Economics Discussion. 2016-06-28. Retrieved 2019-05-22.
  11. Dass, Nishant; Nanda, Vikram; Wang, Qinghai (2013-10-01). "Allocation of decision rights and the investment strategy of mutual funds". Journal of Financial Economics. 110 (1): 254–277. doi:10.1016/j.jfineco.2013.06.004. ISSN 0304-405X.
  12. Siebert, Horst (2001), Berninghaus, Siegfried K.; Braulke, Michael, eds., "Beiträge zur Mikro- und zur Makroökonomik", Beiträge zur Mikro- und zur Makroökonomik: Festschrift für Hans Jürgen Ramser, Springer Berlin Heidelberg, pp. 439–448, doi:10.1007/978-3-642-56606-6_35, ISBN 9783642566066 |chapter= ignored (help)
  13. "Conflicts of macro-economic policy objectives | Economics Online". Retrieved 2019-05-22.
  14. Segal, Troy. "Monetary Policy vs. Fiscal Policy: What's the Difference?". Investopedia. Retrieved 2019-05-08.
  15. Schmidt, Michael. "A Look at Fiscal and Monetary Policy". Investopedia. Retrieved 2019-05-29.
  16. "Monetary Policy Basics". Retrieved 2019-05-22.
  17. "Monetary Policy Basics". Retrieved 2019-05-22.
  18. "Politics and Economic Policy | Boundless Political Science". Retrieved 2019-05-22.
  19. Kenton, Will. "Stimulus Package". Investopedia. Retrieved 2019-05-22.
  20. Chen, James. "Deficit Spending". Investopedia. Retrieved 2019-05-22.
  21. "Impact of Expansionary Fiscal Policy - Economics Help". Economics Help. Retrieved 2019-05-22.
  22. "Five Macroeconomic Goals". Intelligent Economist. 2018-01-15. Retrieved 2019-05-22.
  23. "Conflicts of macro-economic policy objectives | Economics Online". Retrieved 2019-05-22.
  24. "Conflicts of macro-economic policy objectives | Economics Online". Retrieved 2019-05-22.
  25. "Macroeconomic objectives and conflicts - Economics Help". Economics Help. Retrieved 2019-05-06.
  26. Alvarado, Rafael; Toledo, Elisa (2017-08-01). "Environmental degradation and economic growth: evidence for a developing country". Environment, Development and Sustainability. 19 (4): 1205–1218. doi:10.1007/s10668-016-9790-y. ISSN 1573-2975.
  27. Alvarado, Rafael; Toledo, Elisa (2017-08-01). "Environmental degradation and economic growth: evidence for a developing country". Environment, Development and Sustainability. 19 (4): 1205–1218. doi:10.1007/s10668-016-9790-y. ISSN 1573-2975.
  28. "FRB: Speech, Meyer -- Inflation targets and inflation targeting -- July 17, 2001". Retrieved 2019-05-22.
  29. "FRB: Speech, Meyer -- Inflation targets and inflation targeting -- July 17, 2001". Retrieved 2019-05-06.
  30. "Budget overview | Budget 2019-20". Retrieved 2019-05-22.
  31. "Lower taxes | Budget 2019-20". Retrieved 2019-05-29.
  32. Staff, Entrepreneur (2013-03-27). "The Basics of Building a Budget for Your Business". Entrepreneur. Retrieved 2019-05-22.

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