Managing Chaos in Nonlinear Economic Systems

The logistic equation (Lorentz, 1963) has been advanced as an explanation of the chaotic growth patterns observed human settlements. It is questioned, however, whether the growth potential in population systems is sufficient for chaos. By modifying the logistic equation to account for the impact of globalization and agglomeration economies on small tourist destinations, Cole (2009a) demonstrates using data from the Caribbean that solutions and trajectories can replicate formal criteria for chaos. Theoretically, the reason for this, in addition to the availability of investment, demand, information, and labor (that alleviate the conventional restrictions on growth), is the demand and supply-side synergies between activities within a dynamic market-segmented sector. This chapter presents continuous and discrete solutions to the model and explains key findings for destination take-off, accelerated growth, and economic maturity, with a rule for modulating and managing chaos-prone economic systems.