Modeling Economic Growth Based on a One-Good Model Taking into Account Behavioral Factors

Abstract

As part of theoretical study, a simple mathematical model of economic growth is developed by combining alternative methodological traditions. This article was prepared to put forward a new approach to the growth theory and to provide the scientific community with more information about the fundamental problems of economic dynamics. The main part of the study involves a multi-step analysis of the subject. The first step is building a discrete-time constant-rate growth model in the form of a functional dependence of the output rate on the labour stock growth for invariable technology. The growth function also includes the influence of behavioural factors – ​intertemporal preferences and the entrepreneur-employee consumption ratio. Macro- and microeconomic formulas are used to demonstrate how the deviation of the actual behavioural variable values from the formal optimum leads to disequilibrium growth. The second step is the microeconomic rationale for growth. Here, the author creates an effective entrepreneurship model for determining the optimal number of entrepreneurs at the intersection of the descending profit rate curve and the horizontal interest rate graphic. The third step involves theoretical modelling of the output dynamics along a changing trajectory. Two abstract examples of a changing growth trajectory are given: one due to changes in the labour stock, and the other – ​labour productivity. The transition to a new equilibrium trajectory (switching path) is accompanied by exogenous shocks – ​excess output and (or) underemployment. Economic shocks on the growth trajectory are associated with the force of habit in entrepreneurs’ behaviour, which slows down the adaptation of intertemporal consumption preferences to unexpected changes in resource constraints in a growing economy. The author suggests combining the growth theory with the business fluctuations theory and considering dynamic disequilibrium as a phenomenon of a related economic research field.