Timeline for Why (neoclassical) economic models have no profits, unlike the real world?
Current License: CC BY-SA 3.0
7 events
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| May 25, 2017 at 10:46 | comment | added | luchonacho | See my answer, which is the type of explicit analysis I was looking for. | |
| May 19, 2017 at 10:11 | comment | added | PatrickT | @luchonacho, economists are interested in modeling ownership of firms explicitly of course, and you can find studies on that in the Journal of Finance and other top journals, but in the basic, textbook model of perfect competition, ownership is irrelevant: if ownership were relevant, competition would not be perfect. You may also be interested in looking into Modigliani-Miller theorem for related irrelevance results in the idealized world of perfect information, perfect competition, perfect rationality, no distortions, no taxes, etc.. | |
| May 19, 2017 at 10:01 | comment | added | luchonacho | Maybe I'm not being clear. I understand the issue of economic profits, competition, optimisation, etc. I just do not understand why we should not be interested in modeling accounting profits, or ownership of firms, explicitly. | |
| May 19, 2017 at 9:43 | comment | added | PatrickT | one word for two concepts @luchonacho, economic models of perfect competition have profit, it's just that they are equal to zero in equilibrium. Zero economic profit corresponds to positive accounting profit. You should check Mankiw's textbook if you need more explanations, it has several chapters on perfect competition with and without free entry. Profits are not just modeled, they are central to the model, since they are the object being maximized. Zero economic profit is an optimum: without optimization economic profit could be negative (while accounting profit could remain positive). | |
| May 19, 2017 at 6:55 | comment | added | luchonacho | But why is this an explanation of why we do not model profits? Are implicit costs modeled? Can you elaborate? At the moment, it's not a helpful answer. | |
| Mar 25, 2017 at 11:23 | review | First posts | |||
| Mar 25, 2017 at 11:24 | |||||
| Mar 25, 2017 at 11:12 | history | answered | PatrickT | CC BY-SA 3.0 |