On the theory of firm in nonlinear dynamic financial and economic systems

TL;DR

This paper advances the theory of the firm by incorporating nonlinear dynamic systems and chaos theory, proposing new models and stability criteria to better understand firm behavior in complex economic environments.

Contribution

It introduces a nonlinear differential equation approach and the Ledenyov stability theorem for analyzing firm stability in dynamic financial and economic systems.

Findings

Nonlinearities are crucial in modeling modern firms.

Application of bifurcation diagrams to economic systems.

Ledenyov stability theorem characterizes firm stability.

Abstract

The new business paradigms originate a strong necessity to re-think the theory of the firm with the aim to get a better understanding on the organizational and functional principles of the firm, operating in the investment economies in the prosperous societies. In this connection, we make the innovative research to advance our scientific knowledge on the theory of firm in the conditions of the nonlinear dynamic financial and economic systems. We propose that the nonlinearities have to be taken to the consideration and the nonlinear differential equation have to be used to model the firm in the modern theories of the firm in the nonlinear dynamic financial and economic systems. We apply the econophysical approach with the dynamic regimes modeling on the bifurcation diagram as in the dynamic chaos theory with the purpose to accurately characterize the nonlinearities in the economic theory of the firm. We introduce the Ledenyov firm stability theorem, based on the Lyapunov stability criteria, to precisely characterize the stability of the firm in the nonlinear dynamic financial and economic systems in the time of globalization.