Optimal growth paths under different utility specifications, with application  to the Structural Dynamic Economic Model SDEM-2

Economic & mathematical methods and models

Two different model setups (system-dynamic vs. optimization setup) of the model SDEM-2 (Structural Dynamic Economic Model, version 2) are discussed. The model describes the evolution of the economy driven by conflict of interest of two powerful aggregated actors: entrepreneurs and wage-earners. The «performance» of various entrepreneur control strategies governing the evolution of the economy in the system-dynamic mode is evaluated by computing the utilities on corresponding trajectories in phase space. It is shown that the decision-strategies of entrepreneurs are fundamentally dependent on the structure of the chosen utility functions.