Saturday, February 1, 2020

How does the Solow economy meet the Euler conditions

 Behind the Euler equation there is a very important economic intuition: it is the idea that the optimal consumption path must be such that the marginal utility lost from consuming a little less today is exactly the same.
This is the rule needed to always follow the shortest path. The agents, in this model are micro-reversible, they can always exchange position fast enough to adapt to along the minimal path.

Agents, in reality simply avoid long lines, he sustainability mechanism: The lines need e short, sort of the simple one line definition of economics.  The effect is t stabilize queues such that all arrivals seem to be from bell shaped distributions, their is minimal interference between transactions, every get the short queues.

Well, right there means the quantized system, with structured queues will simulate a system that meets Euler condition.  Customers and inventory will follow the minimum path. We get their by proving, within a bound, a random graph exists, the generator of a complete, but random sequence of similar tansactions, and this tree must be minimum span, within the stated uncertainty bound.

o take your Solow Model, from the point at which folks learn the new initial conditions to the point we every agrees that returns are dismal. They got to equilibrium by filling the queues to the level of the known uncertainty in life (assume no new technology except for initial conditions). Call that a complete sequence.  Now do a Huffman encode of it and generate an encoding map. That map is an ideal construction of a value added net that distributes monetary liquidity, making prices work. Feed is a uniform random sequence of transactions and it generates one of many complete sequences that meet the Euler conditions for Solow to work within error bound.

No comments: