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Authors
Affiliations
1 Divecha Centre for Climate Change, Indian Institute of Science, Bengaluru-560 012, IN
2 School of Natural Sciences and Engineering, National Institute of Advanced Studies, Bengaluru-560 012, IN
Source
Current Science, Vol 112, No 02 (2017), Pagination: 220-222
Abstract
Economics has a well-defined notion of equilibrium. Unlike mechanics or thermodynamics, economics does not include explicit theories of dynamics describing how equilibria are reached or whether they are stable. However, even simple economics problems such as maximization of a welfare function might sometimes be interpreted as dynamics problems. Here we consider when dynamics is relevant to welfare optimization problems involving a single decision-maker, for example, a social decision-maker maximizing a social welfare function. We suggest that dynamics occurs in case a welfare maximum can only be known through a sequence of local computations. These local computations give rise to a dynamical system, and the welfare optimum is also equilibrium. On the contrary, if the welfare function is known, then dynamics is irrelevant and the maximum can be chosen directly. The importance of choosing the right metaphor for an economics problem is discussed.
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