An analytical model of Disequilibrium and decentralized productive Exploration

TL;DR

This paper presents a model where persistent heterogeneity among agents leads to both inefficiency and productive exploration, influencing economic growth and innovation.

Contribution

It introduces a tractable analytical model capturing how dispersion fosters decentralized experimentation and can outperform perfect coordination.

Findings

Economy converges to a stationary state with positive dispersion.

Dispersion can dominate the perfectly coordinated benchmark.

Dispersion relates to growth and innovation dynamics.

Abstract

This paper studies the economic role of persistent dispersion in allocations across agents. We develop a tractable model in which firms allocate resources under imperfect information and behavioral updating, generating sustained heterogeneity in beliefs and actions. While dispersion induces static misallocation, it also fosters decentralized experimentation, allowing the economy to explore a broader set of productive opportunities. We show that the economy converges to a stationary equilibrium with strictly positive dispersion and that, under plausible conditions, such disequilibrium can dominate the perfectly coordinated benchmark. The model provides a novel interpretation of observed dispersion in productivity and returns as reflecting both inefficiency and productive exploration. It also yields testable predictions linking dispersion to growth and innovation dynamics.