Dynamic Positive Equilibrium Problem

The Dynamic Positive Equilibrium Problem (DPEP) is a methodology for dealing with time series about economic agents’ decisions, regardless of the amount of available information. The approach is articulated in three phases, as in the static counterpart Symmetric Positive Equilibrium Problem (SPEP), with the variant that it must be preceded by the estimation of the equation of motion which characterizes a dynamic model. Furthermore, the definition of marginal cost in the DPEP model is different from the same notion in the static SPEP. In this paper, the DPEP approach was applied to a panel data dealing with annual crops from California agriculture for a horizon of eight years. The dynamic character of the DPEP model is based upon then assumption of output price adaptive expectations that follows a Nerlove-type specification. Introduction The methodology of Symmetric Positive Equilibrium Problem (SPEP) presented by Paris, and Paris and Howitt is extended in this paper to include a dynamic structure. Dynamic models of economic problems can take on different specifications in relation to different sources of dynamic information. When dealing with farms whose principal output is derived from fruit orchards, for example, the equation of motion is naturally represented by the difference between standing orchard acreage in two successive years plus new planting and minus culling. In more general terms, the investment model provides a natural representation of stocks and flows via the familiar investment equation (1) Kt = Kt −1 + It − Kt −1 where Kt represents the capital stock at time t , It is the investment flow at time t , and is the depreciation rate. This dynamic framework, expressed by a relevant equation of motion, becomes operational only when explicit information about investment, initial stock, and depreciation is available. Unfortunately, information about new plantings and culling rarely exists.