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Application of the Concept of Entropy to Equilibrium in Macroeconomics

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  • AOYAMA Hideaki
  • IYETOMI Hiroshi
  • SOUMA Wataru
  • YOSHIKAWA Hiroshi

Abstract

Entropic consideration plays the essential role in understanding equilibrium in the macroeconomy comprising heterogeneous agents. Curiously, it has been long ignored in economics. In fact, the idea of entropy is completely opposite to that of mainstream macroeconomics which is founded on representative agent models. Macroeconomics is meant to analyze the macroeconomy which consists of 10 million households and one million firms. Despite a large number of micro agents, the standard model focuses on the behavior of the representative micro agent. We show that entropy serves as a key concept in economics as well as in physics by taking the distribution of labor productivity in Japan as an illustrative example. Negative temperature, which is abnormal in nature, turns out to be normal to explain the distribution of workers on the low-to-medium productivity side. Also, the empirical result on the high productivity side indicates limited capacities of leading firms for workers. We construct a statistical physics model that is valid in the whole range of productivity.

Suggested Citation

  • AOYAMA Hideaki & IYETOMI Hiroshi & SOUMA Wataru & YOSHIKAWA Hiroshi, 2015. "Application of the Concept of Entropy to Equilibrium in Macroeconomics," Discussion papers 15070, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:15070
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    References listed on IDEAS

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    1. Hiroshi Yoshikawa, 2003. "The Role of Demand in Macroeconomics," The Japanese Economic Review, Japanese Economic Association, vol. 54(1), pages 1-27, March.
    2. Foley Duncan K., 1994. "A Statistical Equilibrium Theory of Markets," Journal of Economic Theory, Elsevier, vol. 62(2), pages 321-345, April.
    3. Fujiwara, Yoshi & Iyetomi, Hiroshi & Ikeda, Yuichi & Souma, Wataru, 2009. "Distribution of Labour Productivity in Japan over the Period 1996-2006," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 3, pages 1-14.
    4. Souma, Wataru & Ikeda, Yuichi & Iyetomi, Hiroshi & Fujiwara, Yoshi, 2009. "Distribution of Labour Productivity in Japan over the Period 1996--2006," Economics Discussion Papers 2009-2, Kiel Institute for the World Economy (IfW Kiel).
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