Evolution in a general equilibrium framework (Q2237874)

\noindent The problem of the paper is the absence in the neoclassical microeconomic general equilibrium theory (GETh) a `good dynamic for modeling economic evolution'. On the authors' mind the cause of the problem is the generality of GETh's initial assumptions about the preferences of economic agents. The authors propose a non-stationary virtual (conditional) general equilibrium model with assumption that over time, poor companies must adapt and imitate the most successful companies, obtaining as a result, the better short-term equilibrium. The model is built within the Schumpeter's frameworks of methodological individualism with postulating, that only decisions of individuals affect the entire economy. From the production side, the managers of the firms, maximizing profits, decide to produce according to one or another technology available at a given time, and they can change the industry in which they operate. This process, in turn, changes the distribution of consumer wealth. \noindent The equilibrium model is two-level one. The first level is a developing of the standard Arrow-Debreu model of a neoclassical private ownership production economy \textit{E} with \textit{L} goods, \textit{M} consumers indexed by \(i\in \{ 1,...,M\} \), \textit{N} firms indexed by \(j\in \{ 1,...,N\} \)and distributed in K production branches indexed by \(k\in \{ 1,...,K\} \), such that \(N=\sum _{k=1}^{K}N_{k} \) where \(N_{k} \) denotes the number of firms in branch \textit{k}. Each \textit{i}-th consumer has an initial endowment \(w_{i} \in R_{++}^{L} \), strictly monotone preferences represented by a twice differentiable utility function \(u_{i} \), and the real number \(\theta _{ij} \) represents her profit in the benefits of the \textit{j}-th firm. Such artificial economies generally have some manifolds of equilibria, which many authors of the equilibrium literature regard as a fundamental failure of equilibrium theory [\textit{A. Kirman}, ``Demand theory and general equilibrium: From explanation to introspection, a journey down the wrong road'', Hist. Polit. Econ. 38, 24--280 (2008; \url{doi:10.1215/00182702-2005-025}); \textit{V. M. Polterovich}, ``Krizis ekonomicheskoy teorii'', Ekon. Nauka Sovrem. Rossii 1, 46--66 (1998)], but the authors use this equilibrium non-uniqueness at the second level to introduce a dynamical process driven by the decision of the firms' managers maximizing profits. The dynamical process is a change of the relative distributions of the numbers of firms in branches \textit{k}, that is, \(n_{k} =N_{k} /N\), \(n=(n_{1} ,...,n_{K} )\), according to the dynamical system: \[ \dot{n}_{k} =n_{k} [\pi _{k} (n)-\bar{\pi }],\; \; k=1,...,K-1,\quad \dot{n}_{K} =\sum _{k=1}^{K-1}\dot{n}_{k} ,\quad n(t_{0} )=n_{0} , \] where \(\pi _{k} (n)\) is the profit in branch \textit{k}, and \(n_{0} \) is the initial state of the economy. \noindent The mathematical analysis of the model is presented with separating regular and singular economies depended on the equilibrium manifolds properties. Three numerical examples of different kind of dynamics are given.