Economic yoyos and Becker's Rotten Kid theorem

Abstract

PurposeThis paper aims to establish a systemic yoyo model for economic entities so that the most recent developments in systems research can be applied to the study of economics and finance.Design/methodology/approachThe concept and methods of whole systemic evolution are employed so that each economic entity, be it an individual, a family, a company, or any organization, can be analyzed with the help of systems research.FindingsIt is first shown that, in a market of free competition, a concept as fundamental as demand and supply is about mutual reactions and mutual restrictions of different forces under equal quantitative effects. Second, each economic entity is modelled and simulated as an economic yoyo or a flow of such yoyos. Owing to the wide applicable scope and practical significance of the Rotten Kid theorem and the excellent analysis of Bergstrom concerning the fact that this theorem is not generally true, after developing the yoyo model for various economic entities, in this paper the main result is established, a sufficient and necessary condition under which the Rotten Kid theorem holds true in general in light of whole systems evolution.Originality/valueFor the first time in history, the general structure of systems is employed to analyze topics in household economics and a long‐sought‐for sufficient and necessary condition is obtained successfully.