Economic Environments

Abstract

This chapter describes an economic environment with five components: a sequence of information sets, laws of motion for taste and technology shocks, a technology for producing consumption goods, a technology for producing services from consumer durables and consumption purchases, and a preference ordering over consumption services. A particular economy is described by a set of matrices that characterize the motion of information sets and of taste and technology shocks; matrices that determine the technology for producing consumption goods; matrices that determine the technology for producing consumption services from consumer goods; and a scalar discount factor that helps determine the preference ordering over consumption services. The chapter describes and gives examples of each component of the economic environment.