Economic and Biological Evolution: A Non-Equilibrium Thermodynamic Theory

25 Pages Posted: 5 May 2002  

Jing Chen

University of Northern British Columbia - School of Business

Date Written: April 2002

Abstract

Economic and biological systems, as open dissipative systems, need to extract low entropy from the environment to compensate for continuous dissipation. This process can be represented by lognormal processes, which in turn can be mapped into a thermodynamic equation. From here, we develop an analytic thermodynamic theory of economics. Since a thermodynamic equation is of first order in temporal dimension, economic and biological systems as thermodynamic systems are intrinsically evolutionary. Most people agree that thermodynamic theory is a sounder foundation to describe living systems than Newtonian mechanics, which is the physical foundation of general equilibrium theory. As it is often the case, an analytical framework that is built on sounder physical foundation delivers more intuitive and simpler results. This theory, for the first time in economic literature, provides an analytic framework that explicitly represents the relation among fixed costs, variable costs, uncertainty of the environment and duration of a project, which is the core concern inmost economic decisions. Since all economic and biological activities represent the extraction and transformation of low entropy from the environment, this analytic thermodynamic theory offers a unified framework to understand the general pattern in economic and biological evolution.

Keywords: analytical framework, thermodynamic foundation of economics, variable costs, fixed costs, tradeoff between competitiveness and flexibility, non-equilibrium

JEL Classification: A10, B41, N30

Suggested Citation

Chen, Jing, Economic and Biological Evolution: A Non-Equilibrium Thermodynamic Theory (April 2002). Available at SSRN: https://ssrn.com/abstract=308459 or http://dx.doi.org/10.2139/ssrn.308459

Jing Chen (Contact Author)

University of Northern British Columbia - School of Business ( email )

Prince George, BC, V2N 4Z9
Canada
250-960-6480 (Phone)
250-960-5544 (Fax)

HOME PAGE: http://web.unbc.ca/~chenj/

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