From constrained optimization to constrained dynamics: extending analogies between economics and mechanics
Florentin Gloetzl and
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Erhard Gloetzl: Institute for the Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Austria;
Florentin Gloetzl: Institute for Ecological Economics, Department for Socioeconomics, Vienna University of Economics and Business, Austria;
Authors registered in the RePEc Author Service: Erhard Glötzl ()
No V-405-17, Working Papers from University of Oldenburg, Department of Economics
Since the beginnings of modern economics, economists sought to emulate the revolution in physics initiated by Newton’s ‘Principia’ (1687). Concepts from mechanics have influenced economic models both in terms of methodology and content. The aim of this theoretical paper is to put forward a novel economic modeling framework that extends the analogies between economics and classical mechanics from constrained optimization to constrained dynamics. We introduce the concepts of economic forces and economic power that bear striking resemblance to physical forces and the reciprocal value of mass. In this setup, the change of a variable is determined by the forces agents employ to change it according to their desire, their power to assert their interest, and constraint forces emerging from system constraints. The approach is based on a genuine dynamic out-of-equilibrium analysis and can incorporate heterogeneous agents, prisoner’s dilemma situations, and behavioral assumptions different from rationality and utility maximization. Thereby, it seeks to overcome some restrictions inherent to approaches based on optimization under constraint and provide an out-of-equilibrium foundation for equilibrium models. We transform a static textbook exchange model into a dynamic model, and reflect on advantages, extensions and caveats of our modeling approach.
Keywords: Economic Model; Economic dynamics; Disequilibrium economics; Classical Mechanics; Constrained Optimization; Constrained Dynamics; General Equilibrium; Edgeworth Box. (search for similar items in EconPapers)
Date: 2017-11, Revised 2017-11
New Economics Papers: this item is included in nep-hme, nep-hpe and nep-upt
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Published in Oldenburg Working Papers V-405-17
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http://www.uni-oldenburg.de/fileadmin/user_upload/ ... ete/vwl/V-405-17.pdf First version, 2017 (application/pdf)
Journal Article: From constrained optimization to constrained dynamics: extending analogies between economics and mechanics (2019)
Working Paper: From constrained optimization to constrained dynamics: extending analogies between economics and mechanics (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:old:dpaper:405
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