2 Some complications that can occur with Structural Change

2.3 Limited deductive ability

The difference between substantive and procedural rationality (or bounded rationality) is reasonably well documented. In situations without rapid structural change the effects of limited rationality can merely mean that the processes of adjustment (in reaching a stable solution) takes more time. In such cases there will not be any significant change to the equilibrial analysis. When you do have rapid structural change, then it can be the case that the agent's model of its environment lags permanently behind this changing reality. In this case there may be no stable solution. Thus the difference between bounded and infinite rationality might well make the difference between the possibility of a broadly stable and a purely dynamic result. This seems to be the case in Belorus where there is a long lag in the change of firm's actions, now that there is little possibility of debts being written off by the government.

The Role of Expressiveness in Modelling Structural Change - Bruce Edmonds - 16 MAY 96

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