Chapter 9 Network models in economics

Abstract

Publisher Summary This chapter discusses network models in economics. The discipline of economics is broadly concerned with the allocation of scarce resources. The fundamental economic hypothesis is that human beings behave as rational and self interested agents in the pursuit of their objectives, and that aggregate resources are limited. Economic behavior is therefore modeled as the solution of a constrained optimization problem. Typically both the objective function and the constraint set are assumed to possess technical properties such as continuity and convexity that ensure a well behaved solution to the optimization problem. Models of general economic equilibrium represent elegant mathematical structures which describe, at an abstract level, the workings of an entire economy. In models of this type, both the existence of equilibrium prices, and the fundamental optimality properties associated with equilibria, depend on the underlying convexity of the production possibility set. The chapter considers the application of economic methodologies to the design and operation of stochastic service systems.