Management of Regional Economy in the Context of the Gaps of Rationality

Abstract

When pursuing the goal of accelerating economic development, Russian regions face new challenges that actively impede it. In the Russian conditions, it is difficult to respond to the traditional challenges using еру existing management methods. Moreover, new challenges require the development and application of new methods of regional management. Such methods should be qualitatively new and, at the same time, include accumulated positive management experience. We are interested in this problem because of its urgency for the Russian regional economy and the challenges' complexity. We claim that gaps of rationality when making management decisions are one of the factors hindering the Russian regions' development. We hypothesise that using the additive objective function of regional development will allow determining a combination of economic policy models that actively counteracts the gaps of rationality. Such combination will create conditions for the regional economy's development within the planning horizon. Moreover, it will form prerequisites for the growth of gross regional product (GRP) in periods beyond this horizon. Based on the analysis' results we described the connection between the gaps of rationality of the first, second and third type and three models of economic policy. We characterised the types of the gaps of rationality for each policy model. To overcome the gaps of rationality when making regional management decisions, we have proposed to combine models of economic policies that negate specific gaps. For selecting the optimal combination, we modified an additive objective function. It includes a characteristic of the integral level of regional economic development accumulated over a planning time span. Furthermore, it includes a characteristic of the possibility to obtain an acceptable level of regional economic development beyond this time span. In the framework of the examined planning horizon, we base a combination of economic policy models on the use of derivatives of the first, second and third orders of GRP. In the framework of the formation of prerequisites for the regional economy's growth in the period beyond the planning horizon, we apply an average weighted assessment of the opportunities and threats to the regions development, which is present at the starting point of the over-the-horizon planning. The results' application might improve the regional economy management by forming criteria for choosing one or another model of economic policy when making management decisions considering the gaps in rationality.