Introduction
How to do this?
The model
Conclusion
The economic problem as an interplay among
desires, matter and energy
Benjamin Leiva
University of Georgia
[email protected]
03-09-2017
Benjamin Leiva (UGA)
Desires, matter, and energy
03-09-2017
1 / 23
Introduction
How to do this?
The model
Conclusion
Introduction
Broad question:
Can energy be used to understand economic systems?
Benjamin Leiva (UGA)
Desires, matter, and energy
03-09-2017
2 / 23
Introduction
How to do this?
The model
Conclusion
Introduction
On the relation between energetic and economic variables
Labor (Mountain, 1985) and capital (Tatom, 1979)
Market prices (Liu et al., 2008)
Income (Asafu-Adjaye, 2000) and GDP (Lee, 2005, 2006)
Macro variables (Kilian, 2008; He et al., 2010)
Remarkable lack of consensus
Benjamin Leiva (UGA)
Desires, matter, and energy
03-09-2017
3 / 23
Introduction
How to do this?
The model
Conclusion
Introduction
Within the neoclassical doctrine
Energy consumption and growth (Lee, 2006; Stern, 2000)
Oil price shocks (Cologni & Manera, 2008; Kilian, 2008)
Between neoclassics and biophysical economists
Energy is fundamental (Podolinski, 1880; Costanza, 1980; Ayres, 1998)
...it is not (Berndt, 1980; Bohi, 1989; Denison, 1985)
Benjamin Leiva (UGA)
Desires, matter, and energy
03-09-2017
4 / 23
Introduction
How to do this?
The model
Conclusion
Introduction
What has been done using neoclassical procedures?
Energy markets (Atkinson & Halvorsen, 1976; Bhattacharyya, 2011)
Energy efficiency (Levinson, 1978; Palmer & Walls, 2015)
Greenhouse gas emissions (Murray et al., 2014; Acemoglu et al., 2016)
Benjamin Leiva (UGA)
Desires, matter, and energy
03-09-2017
5 / 23
Introduction
How to do this?
The model
Conclusion
Introduction
What has been done using neoclassical procedures?
Energy markets (Atkinson & Halvorsen, 1976; Bhattacharyya, 2011)
Energy efficiency (Levinson, 1978; Palmer & Walls, 2015)
Greenhouse gas emissions (Murray et al., 2014; Acemoglu et al., 2016)
What has been done using energy principles?
Early work (Podolinsky, 1880; Soddy, 1933; Cottrell, 1955; GR, 1971)
Theories of value (Costanza, 1980; Alessio, 1981; Patterson, 1998)
Biophysical and ecological economics (Cleveland et al., 1984; Odum,
1996; Ayres, 1998; Gillett, 2006; Hall & Klitgaard, 2012)
Benjamin Leiva (UGA)
Desires, matter, and energy
03-09-2017
5 / 23
Introduction
How to do this?
The model
Conclusion
Introduction
What has not been done?
Integrate energy principles with neoclassical procedures in a
comprehensive, systematic way
Benjamin Leiva (UGA)
Desires, matter, and energy
03-09-2017
6 / 23
Introduction
How to do this?
The model
Conclusion
Basic building blocks
1
Gaps as the necessary condition of the economic problem
Benjamin Leiva (UGA)
Desires, matter, and energy
03-09-2017
7 / 23
Introduction
How to do this?
The model
Conclusion
Basic building blocks
1
Gaps as the necessary condition of the economic problem
2
Goods as material arrangements that close gaps
Benjamin Leiva (UGA)
Desires, matter, and energy
03-09-2017
7 / 23
Introduction
How to do this?
The model
Conclusion
Basic building blocks
1
Gaps as the necessary condition of the economic problem
2
Goods as material arrangements that close gaps
3
Work as energy transfers that produce goods
Benjamin Leiva (UGA)
Desires, matter, and energy
03-09-2017
7 / 23
Introduction
How to do this?
The model
Conclusion
Energy variables
Figure: The process that closes gaps
Benjamin Leiva (UGA)
Desires, matter, and energy
03-09-2017
8 / 23
Introduction
How to do this?
The model
Conclusion
Energy and prime movers
Figure: Prime movers
Figure: Energy goods
Benjamin Leiva (UGA)
Desires, matter, and energy
03-09-2017
9 / 23
Introduction
How to do this?
The model
Conclusion
How to do this?
Energy and power as the fundamental “scarce means”
“Economics is the science which studies human behaviour as a relationship
between ends gaps and scarce means energy and power which
have alternative uses.”
(Modified) Robins, 1932
Benjamin Leiva (UGA)
Desires, matter, and energy
03-09-2017
10 / 23
Introduction
How to do this?
The model
Conclusion
The producer problem
Energy expenditure minimization
min
x
Gk = ωk xk
s.t. f (xk ) ≥ Qk
xl ≤ xl
k
∀l = 1, . . . , L
Gk = Total energy (direct plus indirect) spent on good k
ωk = Energy dissipated at full workload per prime mover
xk = Quantity of prime movers used on k
f (xk ) = Production function relating xk to Qk
Benjamin Leiva (UGA)
Desires, matter, and energy
03-09-2017
11 / 23
Introduction
How to do this?
The model
Conclusion
The producer problem
Energy expenditure minimization
min
x
Gk = ωk xk
s.t. f (xk ) ≥ Qk
xl ≤ xl
k
∀l = 1, . . . , L
∂x1∗
−f 2
= 1 <0
∂ω1
|H|
∗
∂x2
f1 f2
=
>0
∂ω1
|H|
∂Gk
= γk
∂Qk
Benjamin Leiva (UGA)
Desires, matter, and energy
(1)
03-09-2017
12 / 23
Introduction
How to do this?
The model
Conclusion
The producer problem
Energy surplus maximization
max E = I − Gi i
Q ,x
i
δi Qi − Gi i :
δi f ( x i ) − ω i x i :
∂Ei
∂Qi
∂Ei
∂xl
i
=⇒
δi = γi
=⇒ δi fl = mωl
∀i = 1, . . . , m
∀l = 1, . . . , L
E = Total energy surplus
I = δi Qi = δi f (xi ) = Energy income
δi = Energy content of energy good i
Benjamin Leiva (UGA)
Desires, matter, and energy
03-09-2017
13 / 23
Introduction
How to do this?
The model
Conclusion
The producer problem
Energy surplus maximization
max E = eI − Gi i
Q ,x
i
δi Qi − Gi :
δi f ( x i ) − ω i x i :
i
∂Ei
∂Qi
∂Ei
∂xl
=⇒
δi = γi
=⇒ δi fl = mωl
∀i = 1, . . . , m
∀l = 1, . . . , L
More refutable hypothesis
Own and crossed substitution effects of prime movers
Energy content effect on prime movers and quantity
Benjamin Leiva (UGA)
Desires, matter, and energy
03-09-2017
14 / 23
Introduction
How to do this?
The model
Conclusion
The consumer problem
Utility maximization subject to energy constraints
max U(Qk )
Q
s.t. γkA Qk
k
Benjamin Leiva (UGA)
≤ I
Desires, matter, and energy
03-09-2017
15 / 23
Introduction
How to do this?
The model
Conclusion
The consumer problem
Utility maximization subject to energy constraints
max U(Qk )
Q
s.t. γkA Qk
k
n
X
j=1
Benjamin Leiva (UGA)
γj Qj +
m Z
X
i=1
≤ I
Qi
γi (Qi )dQi ≤
0
Desires, matter, and energy
m
X
δi Qi
i=1
03-09-2017
15 / 23
Introduction
How to do this?
The model
Conclusion
The consumer problem
Utility maximization subject to energy constraints
max U(Qk )
Q
s.t. γkA Qk
k
n
X
j=1
γj Qj +
m Z
X
i=1
≤ I
Qi
γi (Qi )dQi ≤
0
m
X
δi Qi
i=1
n
X
γj Q j ≤ E
j=1
Benjamin Leiva (UGA)
Desires, matter, and energy
03-09-2017
15 / 23
Introduction
How to do this?
The model
Conclusion
The consumer problem
More results
Tangency conditions
Marshallian and Hicksian demands
Engel and Cournot Aggregations
Benjamin Leiva (UGA)
Desires, matter, and energy
03-09-2017
16 / 23
Introduction
How to do this?
The model
Conclusion
The consumer problem
More results
Tangency conditions
Marshallian and Hicksian demands
Engel and Cournot Aggregations
More refutable hypothesis
Own-embodied energy effects of non-energy goods
Benjamin Leiva (UGA)
Desires, matter, and energy
03-09-2017
16 / 23
Introduction
How to do this?
The model
Conclusion
The consumer problem
More results
Tangency conditions
Marshallian and Hicksian demands
Engel and Cournot Aggregations
More refutable hypothesis
Own-embodied energy effects of non-energy goods
Crossed-embodied energy effects of energy goods
Benjamin Leiva (UGA)
Desires, matter, and energy
03-09-2017
16 / 23
Introduction
How to do this?
The model
Conclusion
The consumer problem
More results
Tangency conditions
Marshallian and Hicksian demands
Engel and Cournot Aggregations
More refutable hypothesis
Own-embodied energy effects of non-energy goods
Crossed-embodied energy effects of energy goods
’Marginal utility of energy’ embodied energy effect
Benjamin Leiva (UGA)
Desires, matter, and energy
03-09-2017
16 / 23
Introduction
How to do this?
The model
Conclusion
Equilibrium
Long-run (no power constraints)
Setting production equal to consumption, long-run eq. es characterized by:
δ i = γi
δj0 =
Uj
λ
∀i
∀j
Together with tangency conditions, this guarantees Pareto efficiency
Benjamin Leiva (UGA)
Desires, matter, and energy
03-09-2017
17 / 23
Introduction
How to do this?
The model
Conclusion
Short-run equilibrium
Short-run (active power constraints)
Assume x1∗ > x̄1
δi = γi + φ1 · f −1 (Qi , xi,−1 )
∀i
→ The equimarginal principle no longer holds
Where:
φ1 = Marginal energy surplus of prime mover 1
f −1 (·) = Marginal technical requirements of production function
xi,−1 = all prime movers used to produce i except 1
Benjamin Leiva (UGA)
Desires, matter, and energy
03-09-2017
18 / 23
Introduction
How to do this?
The model
Conclusion
Short-run equilibrium
Short-run (active power constraints)
Figure: Evolution from the short to the long-run
Benjamin Leiva (UGA)
Desires, matter, and energy
03-09-2017
19 / 23
Introduction
How to do this?
The model
Conclusion
Short-run equilibrium
Energy transitions
Agriculture in China
The steam engine in England
Benjamin Leiva (UGA)
Desires, matter, and energy
03-09-2017
20 / 23
Introduction
How to do this?
The model
Conclusion
Final remarks
How can energy be integrated into the neoclassical framework?
Three building blocks
Energy-based optimization procedures
Benjamin Leiva (UGA)
Desires, matter, and energy
03-09-2017
21 / 23
Introduction
How to do this?
The model
Conclusion
Final remarks
How can energy be integrated into the neoclassical framework?
Three building blocks
Energy-based optimization procedures
Future research
Test hypotheses
Benjamin Leiva (UGA)
Desires, matter, and energy
03-09-2017
21 / 23
Introduction
How to do this?
The model
Conclusion
Final remarks
How can energy be integrated into the neoclassical framework?
Three building blocks
Energy-based optimization procedures
Future research
Test hypotheses
Exchanging agents
Benjamin Leiva (UGA)
Desires, matter, and energy
03-09-2017
21 / 23
Introduction
How to do this?
The model
Conclusion
Final remarks
How can energy be integrated into the neoclassical framework?
Three building blocks
Energy-based optimization procedures
Future research
Test hypotheses
Exchanging agents
Multi-period agents
Benjamin Leiva (UGA)
Desires, matter, and energy
03-09-2017
21 / 23
Introduction
How to do this?
The model
Conclusion
Thank you
Benjamin Leiva (UGA)
Desires, matter, and energy
03-09-2017
22 / 23
Introduction
How to do this?
ωl =
The model
Conclusion
K
m
n
1 X
1 X
1 X Uj
φk · fl,k =
δi · fl,i =
· fl,j
K
m
n
λ
k=1
Benjamin Leiva (UGA)
i=1
Desires, matter, and energy
i=1
03-09-2017
23 / 23