One reason early economics avoided modeling systems that moved away from
equilibrium is that these non-equilibrium systems were seen as invariably breaking down
or spiraling out of control. Current understanding of chaotic systems that do not settle to
an equilibrium or steady state but nevertheless can produce predictable patterns and
behaviors could bring a great deal of advancement to realistic economic modeling.
Mathematicians could help to identify and specify what it is about the structure of the
system that that makes it produce the behaviors that it does.
Macroeconomic theories and models that focus on systemic processes and
emergent properties are often rejected within Neoclassical economics because they do
not include what are referred to as “solid micro-foundations.” This reductionist approach
may lead to neglecting important system-level or macro-level emergent properties and
emergent behavior. One of the lessons of the study of complex adaptive systems is the
existence of multiple scales at which dynamical systems can operate. Mathematical
scientists could help address whether there are some problems in economics that can
be solved at a higher scale without being dependent on having the details at a lower
scale fully worked out. In other words, mathematicians can help to establish whether
there are there macro-level processes that are not dependent on specifics at the micro
level.
Modeling economics within the framework of sustainability presents us with the
additional challenges of coupling Human and Environmental Systems (HES). Coupled
HES present a set of unique characteristics not found in purely physical, purely
biological, and purely social processes. Physical, biological and social systems are each
made up of different types of dynamics, properties, behaviors, and governing laws.
Coupling them therefore entails combining models with different types of dynamics,
different temporal, spatial, organizational and output scales, and massive,
heterogeneous data derived with very different methods and from very different sources.
This raises a set of more general modeling challenges for economics with regard to the
question of modeling social, biological and Earth systems in order to address the issues
of sustainability. The Earth System has many structures which can be understood as
performing particular functions of providing services to human systems. These
“ecosystem services” functions can be grouped into two broad categories: “Sources” (of
the real physical and energy resource inputs of the human economy) and “Sinks” (the
absorption and processing of the real physical and energy outputs of the human
economy). The way in which the scale of the human economy has grown relative to
these two ecosystem services presents the human system with the problems of
depletion and pollution.
As Herman Daly (1977, 1996) and other ecological economists have shown, the
neoclassical assumptions of price-driven market substitution of resources and factors of
production negate the need to model depletion of sources. If the Economic System can
always switch to other resources, the model can ignore stocks of natural capital in the
Earth System which are being drawn down in an unsustainable manner. Similarly, the
neoclassical focus on market prices rather than on stocks and flows of physical matter
and energy excludes “externalities” such as physical and energy outputs of the
Economic System (e.g. greenhouse gases).
A conclusion of our working group is the need for a recognition of a diversification
of models, approaches and paradigms. There is a great deal of literature on the
homogeneous nature of most work within the field of Economics. The development of
barry
(Barry)
#1