Cost Innovation: Schumpeter and Equilibrium - Part 1: Robinson Crusoe

31 Pages Posted: 6 Mar 2011 Last revised: 26 Aug 2011

See all articles by Martin Shubik

Martin Shubik

Yale University - School of Management; Yale University - Cowles Foundation

William D. Sudderth

University of Minnesota

Date Written: August 25, 2011

Abstract

Modifying a parallel dynamic programming approach to a simple deterministic economy, we consider the effect of an innovation in the means of production. The success of the innovation is assumed to depend on the availability of financing, locus of financial control, the amount of resources invested, and on a random event. The relationship between money and physical assets is critical. In this first part stress is laid on the innovation behavior of Robinson Crusoe in a premonetary economy, then on his actions in a monetary economy in partial equilibrium. Part 2 considers the closed monetary economy with several differentiated agents.

Keywords: Cost innovation, Schumpeter, Circular flow, Strategic market games

JEL Classification: C73, D24, G32

Suggested Citation

Shubik, Martin and Sudderth, William D., Cost Innovation: Schumpeter and Equilibrium - Part 1: Robinson Crusoe (August 25, 2011). Cowles Foundation Discussion Paper No. 1786, Available at SSRN: https://ssrn.com/abstract=1774682 or http://dx.doi.org/10.2139/ssrn.1774682

Martin Shubik (Contact Author)

Yale University - School of Management ( email )

Box 208200
New Haven, CT 06520-8200
United States

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States
203-432-3694 (Phone)
203-432-6167 (Fax)

HOME PAGE: http://cowles.econ.yale.edu/P/au/d_shubik.htm

William D. Sudderth

University of Minnesota ( email )

206 Church St SE
313 Ford Hall
Minneapolis, MN 55455-8868
United States
612-625-2801 (Phone)
612-624-8868 (Fax)

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