TIME AND ALLOCATION

This chapter discusses the role of time in economic theory. Time is a concept of central importance in everyday economic activities, something which suggests that it must be important also for an understanding of the economy. Unfortunately, the introduction of time into economic models tends to make them more complicated. The study of economic activities involving time must necessarily be more complex than that of static equilibrium. Subsequently, a commodity should be characterized not only by its physical properties, its quality, and the location on which it is available, but also by its date of delivery. As far as the time-dependency of interest rates for a given good at a particular time is concerned, this seems not too disturbing for economic intuition; the interest rates change over time. The chapter discusses the formal properties of the standard model of allocation when the time structure is commodity bundles and prices is added. However, there are considerations that go beyond the formal aspects and in the end matter more for the question of whether or not the model will be fit for problems involving time.