Thermoeconomics

The term Thermoeconomics refers to an economic theory resulting from the application the laws of thermodynamics to economics, especially the second law. Early work on the subject starts with Frederick Soddy's Wealth, Virtual Wealth and Debt (George Allen & Unwin 1926), but the term originates with the American engineer Myron Tribus in 1962,   and developed by the statistician and economist Nicholas Georgescu-Roegen.

A Thermoeconomic Theory of Value
As the second law of thermodynamics and information theory have a link we can also see thermoeconomics a statistical physics of economic value.



Where V(X) represents the value of product X. The positive integer, b, represents the number of producers and p the probability measure. This leads to products with a high number of producers having low value and a products with a low number of producers having a high value. A value of P = 1 represents a state of abundance and the value of a product equals zero.

Production and Competition
Thermoeconomics models systems as acquiring low entropy from the environment and forming structure. In economics, these structures are business and products which compete with each other. In thermoeconomic terms this process becomes:



Where the entropy, S represents the economic value and r the rate of price change over time. Sigma represents the rate of uncertainty.

Production has associated fixed costs and variable cost, both connected with entropy, for a given project. In thermoeconomics the cost becomes:







Where N(x) represents the the cumulative probability distribution function for a standard normal random variable. The variable K represents the variable costs. T represents the time duration for the project.