Keywords: biased equilibrium, differential market model, information economics, institutional economics, neoclassical economics, Pareto coalition, Pareto efficiency, Pareto improvement, Pareto space, market loop, money market dynamics, economic models, green economics, modelling
A consolidated economic model based on a new concept of biased equilibrium
The fundamental theorems of welfare economics are not designed to represent the real world. Instead, they tell us about certain conditions under which general equilibrium will be efficient. This paper introduces a new concept 'biased equilibrium' based on information economics and consolidates neoclassical economics and institutional economics together. In the real world economy, the probability of achieving Pareto efficiency for a subset of the population is much higher than that for the whole population. This model is enhanced to describe that our market is not uniform, but distributed in layers of energy states. A money market dynamics describes how our global economy has achieved prosperity over the time. If this is not balanced, it will create a market loop that may potentially put debt pressure on the economy or may cause poverty and hinder any green initiative.