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Statistical mechanics of complex economies

Bardoscia, M; Livan, G; Marsili, M; (2017) Statistical mechanics of complex economies. Journal of Statistical Mechanics: Theory and Experiment , 2017 , Article 043401. 10.1088/1742-5468/aa6688. Green open access

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Abstract

In the pursuit of ever increasing efficiency and growth, our economies have evolved to remarkable degrees of complexity, with nested production processes feeding each other in order to create products of greater sophistication from less sophisticated ones, down to raw materials. The engine of such an expansion have been competitive markets that, according to general equilibrium theory (GET), achieve efficient allocations under specific conditions. We study large random economies within the GET framework, as templates of complex economies, and we find that a non-trivial phase transition occurs: the economy freezes in a state where all production processes collapse when either the number of primary goods or the number of available technologies fall below a critical threshold. As in other examples of phase transitions in large random systems, this is an unintended consequence of the growth in complexity. Our findings suggest that the Industrial Revolution can be regarded as a sharp transition between different phases, but also imply that well developed economies can collapse if too many intermediate goods are introduced.

Type: Article
Title: Statistical mechanics of complex economies
Open access status: An open access version is available from UCL Discovery
DOI: 10.1088/1742-5468/aa6688
Publisher version: https://doi.org/10.1088/1742-5468/aa6688
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: critical phenomena of socio-economic systems, dynamics of supply and production networks, general equilibrium models
UCL classification: UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL BEAMS
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > Dept of Computer Science
URI: http://discovery.ucl.ac.uk/id/eprint/1559691
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