Production Capacities in Decentralized Economies

Abstract

In this chapter, we consider an extension of our model of a closed decentralized economy that uses Leontief technologies. The extended model now includes a component that describes the dynamics of production capacities. We show that the extended model can also function in balanced growth mode, when every sector plans its production aiming to maximize its profit. For the extended model, we consider two algorithms for transition to balanced growth. The first algorithm is based on using physical indicators, whereas the second one uses financial indicators. For the latter algorithm, we provide an economic interpretation that involves owners of production assets, which control investment, and managers (tenants), which rent these assets and oversee production. We also consider an extended model that includes a labor resources component. Here the owners of production assets model the population, which receives both income from renting these assets out and a wage for its work.