Decision centralization and decentralization in a dynamic economic system
type: Item
instance of: scholarly article
title: Decision centralization and decentralization in a dynamic economic system
zbMATH Open document ID: 0646.90011
DOI: 10.1016/0377-0427(88)90411-6
author: Åke E. Andersson
author: Wei-Bin Zhang
published in: Journal of Computational and Applied Mathematics
publication date: 1988-01-01T00:00:00Z
review text: This paper studies one of the most important problems of economics - the problem of centralization and decentralization of decisions on quantities and prices of products and capital. Considered is a dynamic economic system based on the Leontief input-output model with constant input, output and incremental capital output coefficients. The behaviour of the nonlinear dynamic system is investigated and it is shown that in a model with n sectors the following properties hold: a) any time-dependent solution of the system is periodic; b) the system is conservative and the cycle in Proposition a) is neither stable or unstable; c) it is structurably unstable. It follows that any small perturbation in the functional forms may result in a completely different behaviour. The problem of stability is also analyzed under specific assumptions made about the determination of prices and outputs: the prices are determined according to the Walrasian tatônnement procedure, while decisions on quantitative changes are assumed to be determined in a Marshallian tatônnement process. The problem thus formulated is primarily related to short run oscillations. The problem of homogeneous economic growth is analyzed from the point of view of the long run. This system can achieve an equilibrium in terms of a special aspect of long term welfare maximization. These basically decentralized reaction patterns are then confronted with a supplementary centralized policy making, based upon interest rate and growth rate controls for the economy seen as a macro entity. In this case it is proved that: a) with decentralized determination of prices and quantities according to the tatônnement process and b) with centralized determination of growth and interest rates according to an adaptive adjustment procedure, the periodic solutions in prices and outputs disappear and the system becomes stable. It follows that for this case there exists a long run stable solution which can converge towards the unique general…
Mathematics Subject Classification ID: 91B62
Mathematics Subject Classification ID: 91B66
zbMATH DE Number: 4055325
zbMATH Keywords: centralization
zbMATH Keywords: decentralization
zbMATH Keywords: Leontief input-output model
zbMATH Keywords: nonlinear dynamic system
zbMATH Keywords: cycle
zbMATH Keywords: perturbation
zbMATH Keywords: stability
zbMATH Keywords: tatônnement
zbMATH Keywords: welfare
zbMATH Keywords: policy making
zbMATH Keywords: long run stable solution
MaRDI profile type: Publication
full work available at URL: 0377-0427(88)90411-6
OpenAlex ID: W2037943778
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description: scientific article; zbMATH DE number 4055325