Introducing the Time Factor into the Economic Framework of a Static General Equilibrium Model

Abstract

Time is an important ‘factor’ or ‘input’ into many economic activities, but up to now, the issue of time valuation has been considered mostly in a partial equilibrium framework such as in the context of travel time savings valuation. This does not allow for a more general consideration of the issue of time valuation especially in the wider context of an economy where almost any economic activity ‘takes time’. In a general equilibrium framework, however, the issue of time valuation seems to be neglected. This is because despite the fact that both production as well as consumption activities ‘take time’, production time is often considered only implicitly via the representation of the labour input: as a flow of labour service through time. Capital-time or machine-time, on the other hand, is ignored or masked under the representation of this input in the form of a stock rather than a flow (of capital services). Flow requires time, whereas stock is ‘timeless’. Therefore, it can be said that time is almost ‘absent’ in a (static) general equilibrium framework where, not only with regard to the issue about capital stock versus capital service flow (or utilization rate), in the long run as well as in the short run, but also with regard to the consideration of other so-called ‘fixed’ input, such land, natural or environmental resource stocks. These stocks are often taken into consideration but only with regard to the measurement of the (static) wealth of an individual or of a nation, but not with regard to the flow of the income which is derived from the activities of the individual or the nation (activities take time). In this paper, we consider the time factor in the framework of a ‘comparative static’ general equilibrium economic model because even here the operation of the time factor is still present and important and can affect the valuation (or costing) of many economic activities albeit in an implicit and subtle way.