Externalities, Aging Processes and Spatial Structures: a General Dynamic Approach

Abstract

This paper deals with interactions of (1) externalities and non-convexities or indivisibilities — and (2) aging processes of various kinds of stocks. The interesting question is how these, together with factor market deficiencies, can generate waves or cycles of economic activities. Externalities work both on the production side and on the consumption side of economic activities — within industries, within groups of consumers or within cities in one kind of consideration, or on output markets or input markets, like labour markets or markets for information as another aspect. The relevant adjustment periods differ in length. I shall discuss cases ranging from less than a year in the one extreme case — particular cases of household demand — to a century (or more) at the other extreme — different developments of regions with different economic structures. The shortest cycles originate from psychic phenomena whereas very long waves are caused by changes of long-term capital stocks and very long-run changes in social attitudes and social organisations. In my chapter, I try to illustrate how the same kinds of mechanisms work in different settings, without going into mathematical detail.