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

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  • Martin Shubik
  • William D. Sudderth

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.
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  • Martin Shubik & William D. Sudderth, 2011. "Cost Innovation: Schumpeter and Equilibrium - Part 1: Robinson Crusoe," Levine's Working Paper Archive 786969000000000049, David K. Levine.
  • Handle: RePEc:cla:levarc:786969000000000049
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    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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