game is used to decide the appropriate action by one of the players to maximise the minimum 'payoff'
he can expect, irrespective of the actions of his opponent. The actual decision in any game depends on the set of entries in the 'payoff matrix'. Further examples may be found in Luce and Raiffa (1957) and Baumöl (1965).
to higher levels can be expressed in terms of transfer rates. Alternatively, the expansion of education can be planned so that the supply of persons with certain
qualifications matches the demand for corresponding skills in the economy. A series of simulations can be generated by the model to match the supply and demand at each level,
taking into account the effect of educational expansion on the growth of the economy.
Lending to smallholders
Rather than directly specifying the volume of loans over the projection period, the model provides the option of specifying loans, in any year, as a proportion of total net investment in smallholder agriculture
financed by savings out of rural incomes.
Government ownership in the modern sectors of the economy Changes in the planned share of government
ownership over the period are to be specified for major natural resource based projects, plantations and modern industry. The actual government expenditure to acquire or maintain the planned share of ownership is then derived from the timing and scale of total investment in these sectors. For major projects and plantations, the total investment over the period is directly determined by
separate long-term policy decisions. For modern industry, the time path of total investment is endogenously derived from the growth of other components of demand, and is indirectly influenced by strategy choices in other areas.
Taxation of profits
In any year, the rate of tax on profits of major projects, plantations and modern industry can be calculated by the model if policy makers specify the
permitted rate of return (after tax) to capital. Such decision rules will allow for automatic adjustment of tax rates if the profitability of these sectors is altered by other aspects of government policy (for example, the
determination of wage rates and the provision of
infrastructure), or by exogenously determined changes in export prices.
Determination of wages
The model allows any long-term increase in real wages to be related to the rise in productivity of labour
in some sector of the economy, itself derived from past provision of infrastructure by the government. In the
projections presented in this study, the wages for unskilled employees in modern industry are linked to the increase
in productivity in that sector. Allowance is made for differentials by skill level to be determined from the
relative demand and supply of manpower at each skill level. For example, differentials may be kept constant if there is excess demand, but be permitted to decline if 'educated unemployment' emerges.
Income taxes
Specifying income tax strategies in terms of a minimum taxable income and a marginal rate of tax provides a simple means of allowing the rate of income tax to
vary with incomes per head.
Provision of infrastructure
Expenditure on infrastructure may be linked to the size of population by specifying a desired time path
of expenditure per head. Alternatively, once other strategies are specified, a series of simulation runs can be generated to select a time path for a steady expansion of expenditure on infrastructure that leads to a long-term balance of total
government receipts and outlays; that is, to (approximately) zero net indebtedness at the end of the projection period. The latter approach is used in the experiments discussed in
later chapters. The 'capacity1 to spend on infrastructure depends on other strategy choices, allowing alternative
combinations to be compared in terms of their effects on the provision of infrastructure per head over the projection period.
Borrowing
Strategies on government borrowing from abroad may be expressed in terms of any desired time path of indebtedness.
The combinations discussed in the thesis derive borrowing in any year as the difference between government outlays and receipts (excluding borrowing).
These particular aspects of policy formation represent only a small subset of the important decision making areas where long-term strategies may be selected by
the Papua New Guinea government. Perhaps the most important omissions from the above list are decisions relating to the allocation of government services, and the distribution of economic activities over different regions of Papua New
Guinea. A model where the population is only classified into the rural and urban populations cannot contribute to these aspects of policy formation.
For the decision-making areas that can be
considered by the present version of the model, a 'basic' time path of each of the key policy variables is specified in the course of the detailed submodel descriptions.
The choices were not made by attempting to predict, or pre-empt the choices available to the Papua New Guinea government. The 'basic' combination of strategies serves to generate the basic projection discussed in Chapter 11,
which is then used as a benchmark for comparing alternative long-term strategy combinations in Chapters 13 to 16.