Regensburg 2016 – scientific programme

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SOE: Fachverband Physik sozio-ökonomischer Systeme

SOE 13: Economic Models I

SOE 13.1: Talk

Wednesday, March 9, 2016, 10:15–10:30, H36

A Meta-Theory of Economic Models - General Constrained Dynamic Models (GCDM) in Analogy to Classical Mechanics — •Florentin Glötzl — Wirtschaftsuniversität Wien, Institute for Ecological Economics, Welthandelsplatz 2/D5, AT 1020 Wien

Drawing from classical mechanics, we propose General Constrained Dynamic Models (GCDM) as the basis for a novel and encompassing understanding of economic models from a mathematical and theoretical perspective. Economic models differ in their essence in the choice of which variables are exogenous an which are endogenous i.e. assumptions about the power of agents to influence variables.

In analogy to classical mechanics we explicate the power of in GDCM in a formal framework in which the dynamics of the system are determined by the economic force f applied by an agent (or aggregated sector) to change a variable and his power p (the analogy to 1/inertial mass in physics) to enforce his interest.

In the GCDM framework the difference between various economic theories and models is explicitly shown to be the result of different assumptions about the power relationships in the economy. The assumption that an agent has complete power to determine the change of a certain variable corresponds to the variable being exogenous. If no agent has full power to influence the variable it is endogenous.

While in standard economic models power is always dichotomously one-sided, GCDM allows allows for mixed power relationships. It can thus can also illustrate the result space between the various common economic models and thus better depict reality.