A general equilibrium framework for the divvy economy

Abstract

In a recent paper, G. Dantzig has formulated a model for resource allocation in the so called Institutional Economy. The author proves the existence of a general equilibrium solution to the economic problem (in terms of prices and quantities of input factors and final goods) which at the same time satisfies agreed upon shares of monetary flows allocated to input resource groups and to output consumer groups. The agreement upon the share values is carried out by a political process, while the market mechanisms adjust the prices of primary resource inputs and the relative sizes of the consumer groups until those shares are satisfied. The inputs and outputs and the production and transformation technology are presented in an Input-Output format. The formalization of the resource allocation problem takes into account the presence of institutionalized forces together with the market mechanism. Examples can be taken from empirical observation (collective bargaining, Congressional Budget Approval, indexed prices of raw material) is per se a major innovation with respect to more classical results. In the following sections we we will try to view the Divvy results in relation to the classic economic formulation of the problem and study possible implications of it.