Showing papers in "Journal of Evolutionary Economics in 1994"

An introduction to evolutionary theories in economics

Abstract: This paper presents the basic ideas and methodologies of a set of contemporary contributions which are grouped under the general heading of “evolutionary economics”. Some achievements-especially with regard to the analysis of technological change and economic dynamics-are illustrated, some unresolved issues are discussed and a few promising topics of research are flagged.

Competition, Fisher's Principle and increasing returns in the selection process

Abstract: This paper explores the relationship between increasing returns and structural change in the context of an explicitly evolutionary model. The central theme concerns the behaviour of a population of competing firms which is elaborated in terms of Fisher's Principle, the rate of change of the moments of this population distribution are functionally related to higher order moments of the. distribution. Different kinds of increasing returns are distinguished and it is shown how they influence the dynamics of selection. The basic principles here are those of replicator dynamic, systems, and it is shown how the Fisher Principle interacts with the more familiar Kaldor/Verdoorn principles of endogenous growth.

Firm selection and industry evolution: the post-entry performance of new firms

Abstract: A dynamic framework based on the process of firm selection and industry evolution is used to analyse the post-entry performance of new firms In particular, it is hypothesized that, based on the stylized fact that virtually all new firms start at a very small scale of output, firm growth and survival are shaped by the need to attain an efficient level of output The post-entry performance of more than 11,000 US manufacturing firms established in 1976 is tracked throughout the subsequent tenyear period Firm growth is found to be negatively influenced by firm size but positively related to the extent of scale economies, capital intensity, innovative activity, and market growth By contrast, the likelihood of survival is identified as being positively influenced by firm size, market growth, and capital intensity, but negatively affected by the degree of scale economies in the industry When viewed through the dynamic framework of firm selection and industry evolution, the empirical results shed considerable light on several paradoxes in the industrial organization literature, such as the continued persistence over time of an asymmetrical firm-size distribution consisting predominantely of suboptimal scale firms, and the failure of capital intensity and scale economies to substantially deter the entry and start-up of new firms

Aggregate convergence and sectoral specialization in innovation

Abstract: Over the last 20 years OECD countries have converged in terms of their innovations, in parallel to the process of economic convergence and catching up in technology. However, this has not led to a similarity in the sectoral strengths of the majority of countries. Applying a measure of ‘technological distance’ between pairs of countries based on patents, it is shown that nations have increased their technological specialization (i.e. their sectoral differences) over the 1980s. An apparent paradox is pointed out, as countries converge by becoming more different and grow by becoming more specialized.

Collective learning, innovation and growth in a boundedly rational, evolutionary world

Abstract: We formulate a simple multiagent evolutionary scheme as a model of collective learning, i.e. a situation in which firms experiment, interact, and learn from each other. This scheme is then applied to a stylized endogenous growth economy in which firms have to determine how much to invest in R&D, where innovations are the stochastic product of their R&D activity, spillovers occur, but technological advantages are only relative and temporary and innovations actually diffuse, both at the intra and interfirm levels. The model demonstrates both the existence of a unique long-run growth attractor (in the linear case) and distinct growth phases on the road to that attractor. We also compare the long-run growth patterns for a linear and a logistic innovation function, and produce some evidence for a bifurcation in the latter case.

On "badly behaved" dynamics (Some applications of generalized urn schemes to technological and economic change)

Abstract: Adaptive (path dependent) processes of growth modeled by urn schemes are important for several fields of applications: biology, physics, chemistry, economics. In this paper we present a general introduction to urn schemes, together with some new results. We review the studies that have been done in the technological dynamics by means of such schemes. Also several other domains of economic dynamics are analysed by the same machinery and its new modifications allowing to tackle non-homogeneity of the phase space. We demonstrate the phenomena of multiple equilibria, different vonvergence rates for different limit patterns, locally positive and locally negative feedbacks, limit behavior associated with non-homogeneity of economic environment where producers (firms) are operating. It is also shown that the above urn processes represent a natural and convenient stochastic replicator dynamics which can be used in evolutionary games.

A Schumpeterian model of endogenous innovation and growth

Abstract: A disequilibrium model of endogenous innovation and growth is presented. The behaviour of the agents is supposed to be governed by routines, not by maximization. The entrepreneurs are assumed to invest a fraction of their operating profits in real capital accumulation, and another fraction in R&D. The latter leads to an increase in labour productivity via a R&D production function. In this ‘Schumpeterian’ model, not only the R&D processes of innovations are considered, but the diffusion processes as well. As in Schumpeter's theory of economic development the economic impact of technical change is considered a disequilibrium phenomenon. Thus, in a capitalist economy characterized by ongoing diffusion processes of innovations, time averages are more important than steady state values even in a long run perspective.

Technological Change and Path Dependence: A Co-evolutionary Model on a Directed Graph

Abstract: In this paper, I model technological change as an evolutionary process of generation and selection of economic activities in a highly path-dependent fashion. There are two key features of our approach. The first is that economic activities are conceived as points of a directed graph and endowed with a corresponding notion of technological distance which determines both the probability of invention of any new activity and the cost of learning it. The second feature is that agents are assumed rational and taken to choose optimally from among the available activities, given the status quo and the associated learning costs. In such a context, we focus on two economies that start off technologically close and evolve side by side with some extent of technological diffusion across them. It is shown that alternative assumptions on the speed of diffusion may have drastically different implications for the evolution of the process. I then argue that this theoretical analysis helps provide some insight on existing empirical evidence; in particular, on the conditions under which relative stagnation or technological catch-up may arise and become consolidated among different economies.

Racing in two dimensions

Abstract: In this paper we study an industry in which there is an ongoing sequence of R&D races between two firms. Firms are engaged in product innovation. Products are horizontally and vertically differentiated. There are two key characteristics/dimensions to products, and the level at which these are embodied in products can be increased by R&D. At each time firms can spend R&D on improving their product in one or both dimensions. We allow the possibility of economies scope — so R&D undertaken in one dimension can spillover to the other. The question we are interested in is whether a firm that is ahead in a single dimension but behind in another will focus all its R&D effort in the area in which it is ahead (product specialisation), or whether it will try to do R&D in both dimensions in the hope that it might get ahead in both and end up with a superproduct that dominates in both characteristics. The outcome of this R&D competition determines a Markov transition probability matrix determining the evolution of the industry. We show that when the R&D technology is characterized by constant returns then the only steady-state outcome is one in which the economy stays forever in a position in which one firm produces a super-product and the other gives up doing R&D altogether. This outcome is unaffected by the degree of economies of scope. When the R&D technology is characterised by decreasing returns, then the industry will visit all states and so will exhibit both product specialisation and superproduct dominance at various times. Now the extent of economies of scope matters and we show that the greater the extent of economies of scope, the less likely is the industry to exhibit product dominance, and the more likely it is to exhibit product specialisation.

Schumpeterian growth, chaos, and the formation of dissipative structures

Abstract: This paper reformulates several basic ideas introduced by Joseph Schumpeter to examine the correlation between productivity growth and technological change in order to explore why American productivity growth has been sluggish for the past two decades. Convetional growth theory maintains that a primary cause of low productivity growth is inadequate capital formation, which in turn is caused by low private domestic saving. This paper borrows concepts from cybernetics, formal information theory, and chaotic dynamic systems to describe the Schumpeterian process through which innovative “new combinations” of capital goods generate wealth, productivity increases, and income growth, and which in turn cause increased savings. It describes the process through which such fundamental technological changes are diffused by entrepreneurs throughout the economy, and concludes that the fundamental causes of America's relatively weak productivity growth are to be found in policies or practices that inhibit innovation and entrepreneurship.

Schumpeter's circular flow, learning by doing and cyclical growth

Abstract: A two-sector growth model with endogenous technical change is presented. Concerning technical change, we assume that it is reflected by increases in the stock of human capital which are acquired through learning by doing. As a result, it turns out that transitory or, using the Hopf bifurcation theorem, persistent oscillations of the economic variables may be the outcome. Thus we are able to show that learning mechanisms alone may be sufficient to destroy the circular flow as described by Schumpeter.

The role of state enterprises in the transition from command to market economies

Abstract: In transition from command to market economies total privatization has proved to be impossible to achieve, and a substantial part of large enterprises are likely to remain in full or partial state ownership. Hasty privatization has in many cases even proved to be destructive. There is a need to reconsider the basic approach to transition. Contrary to conventional wisdom prevailing in mainstream economics state-owned enterprises (SOEs) are not necessarily inferior to private firms in economic efficiency. J. Kornai's soft-budget constraint is reconsidered. Two models are suggested under which SOEs may prove to be viable in the long run and serve to promote a smoother physical transition. Under Model One (which is the general case) SOEs are largely separated from the state and operate on the basis of profit maximization. Under Model Two (which applies to certain industries) different objective functions are chosen for purposes of economic efficiency. Finally, preserving SOEs is seen as an alternative means of reducing inequitable income distribution at the source where primary incomes are created.

Vintage capital, market structure and productivity in an evolutionary model of industry growth

Abstract: This paper examines the effects of inter-firm variation in vintage equipment replacement policies on industry productivity and structure using an evolutionary model based on Nelson-Winter. Traditional industry productivity measures assume a graduated replacement policy with low variation across firms in the average age of the capital stock. This approach allows for inter-firm policy variation. The first part reviews the neoclassical treatment of vintage capital investment; the second part outlines an evolutionary model of vintage replacement in the context of industry growth; and the third part presents results of simulation experiments focused on the relationship between vintage replacement patterns and industry productivity growth. Findings suggest that inter-firm differences in vintage capital investment policies may account for significant shifts in the rates of industry productivity growth and changes in market structure.

GNP and military mobilization

Abstract: The remarkable shift from a limping United States recovery from the Great Depression of the 1930's to the relatively rapid and immensely successful World War II mobilization of the 1940's was far from an easy and orderly transition. The first official national income estimates in the United States were prepared in 1933 and were valuable in monitoring the recovery programs. They were especially helpful in determining the maximum potential resources for the wartime mobilization. This information was essential in setting goals that were both ambitious and feasible. Many difficulties were encountered in a feasibility dispute between civilian and military organizations and leaders. Changes in personnel, reorganizations and top level coordination led to massive production of armaments and truly making the United States the “Arsenal for Democracy.”

Information, innovation and diffusion of technology

Abstract: The paper presents an infinite horizon model of innovation and diffusion incorporating features from recent advances in evolutionary economics. A stochastic variant is explored which posits that technological knowledge is costly to obtain, requiring resource expenditure. There are heterogeneous agents: optimizing as well as non-optimizing agents. The optimizing agents incur an innovation cost. The return from inventive investment is random. The non-optimizing agents, operating existing technologies, behave solely adaptively. Cross-effects between those two types of agents give rise to the multiple equilibria, path-dependence, diversity of diffusion processes and a coexistence of different technologies. Some policy conclusions are drawn in the last section.

The relation between the average complexity of high-tech products and their diversity: An empirical test of evolutionary models

Abstract: What is the relation between the average level of complexity that characterizes a product's technology, and the degree of diversity of that technology across rival firms? Evolutionary theories of innovation and technical advance are consistent with either a direct or an inverse relation. The issue thus becomes an empirical one. This paper uses a unique database containing detailed quantitative data on the specifications of 12 high-tech product groups for the U.S., Japan and selected European countries, for 1982, for both products and processes. It is found that the more complex the technology, the less diverse is the technology of rival firms that produce the product. This is consistent with the following evolutionary process: Economies of scale and scope inherent in high-level technologies require firms who adopt them to dispose entirely of older technologies, in order to remain competitive; at the same time, older, simpler technologies continue to exist and permit wide diversities among firms who pursue “niche” market strategies.

Can people learn rational expectations

Abstract: In this note the stability of the rational expectations equilibrium for the Foster and Frierman (1990) version of the Blume and Easley (1982) model is investigated under the assumption that the learning mechanism used by economic agents is based on a selection mechanism on a class of competing models having a ‘physical’ meaning for the agent and not on the interpolation of models having no clear physical meaning, as it is often the case in the literature on learning rational expectations. It is found that, under the standard assumption that the rational expectations model is in the information set of the uninformed trader no matter his degree of rationality, convergence to it is less likely the higher the uninformed agent's degree of rationality, in a sense to be specified in the paper. Some comments on the result are also provided.