Based on von Neumann's model of an economy characterized by processes and goods, we add to that model a component representing capital equipment. We assume that the need for capital equipment by any process is proportional to the rate at which that process is running, and therefore an increase in rate requires that capital equipment be purchased, whereas a decrease in rate allows capital equipment to be sold. We thereby construct a continuous-time dynamical model, which we use to investigate the evolution of economic diversity under two price equilibrium scenarios: the first with non-negative prices and nonpositive excess demands; the second with enforced market clearing and with prices allowed to be negative. The second scenario represents an economy in which recycling is required, so that excess supply cannot be discarded. We prove that at any time during the progression of the model economy, the solution to each of the two price equilibrium problems exists, and that non-uniqueness of the solution, if any, does not affect the development of the model economy. We compare matched model economies under the two scenarios by simulating their respective evolutions. In each case, the model economy experiences a process of selection and matures to a state of balanced growth, with a higher growth rate when excess supply is discarded, but with greater economic diversity with enforced recycling. The robustness of these qualitative results is demonstrated by repeated trials of simulations on matched pairs of model economies with different randomly chosen parameters.
- Models, Economic
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