Eli5- What exactly is a sequence economy?



So I was trying to understand economies of sequence (which I did) but this led me to discover sequence economies (fairly certain they are distinct things), which is generally defined as “a general equilibrium model including markets at a sequence of dates, reopening over time”…to which I say *huh?* because I can’t make sense of it.

In: Economics

Say you want to make a cheeseburger. I give you bread, cheese, and meat. You make the sandwich. All the stuff you need is there right away.

Now say I give you the bread and cheese first, but not the meat. You might make a grilled cheese in the meantime. Or I give you the bread and meat, but no cheese. You might make a regular hamburger. If I give you the meat and cheese, you might make a “naked” burger that became popular with the whole Atkins diet trend. Or you might just wait until you get the bun.

In any case, if you up some of the cheese and buns in advance for grilled cheese sandwiches, you might not have the right ratio later for cheeseburgers because you’ll have extra meat. Planning the meals out in advance is tricky, especially if you don’t know what order I’m going to be giving you the ingredients.

The first model where you have the information in advance is an Arrow-Debreu economy. The second one where information and “ingredients” are unknown and come at different times is a sequence economy.

It’s relevant today because COVID shut down large parts of the global supply chain at random times and places depending on where the viral cases are surging. So there is a lot of uncertainty, especially if the products you use to make your stuff come from many different countries/places. You can’t assume everything is stable and use the Arrow-Debreu model like usual.