Deterministic evolutionary dynamics: A unifying approach

We tackle three components of evolutionary modelling: payoffs, dynamical systems and equilibrium concepts. Firstly, we merely require that fitness functions are continuous. Secondly, we examine very general classes of dynamics. Thirdly, we give useful parallels to the Nash equilibrium and the evolutionarily stable strategy. Under (weakly) sign-compatible dynamics the change in population share of every (at least one) subgroup present in the population corresponds in sign with its relative fitness. At a saturated equilibrium, each subgroup with positive population share has highest fitness. We examine two evolutionary stability concepts: the evolutionarily stable equilibrium and the generalized evolutionarily stable state.     

Localized knowledge percolation processes and information networks

Summary The development of knowledge within industries is strongly influenced by the network structure of relations among firms. Firms relying on localized knowledge can implement their technological capability not only by means of research and development expenditures and internal learning but also through the systematic absorption of technological and scientific externalities available in their environment. Percolation processes have been studied in physics as the outcome of two classes of forces termed as connectivity and receptivity. The former measures the number of connections in place among the agents in the network and the latter the capability of each agent to absorb the informations received. This paper applies the methodology of percolation processes to operationalize the implications for both the economics of innovation and for technology policy of the structural characteristics of innovation networks as communication systems.     

A close eye on the invisible hand

The paper shows how, and under what minimal information supply conditions, a market finds its competitive equilibrium price and thus solves the so-called tatonnement process, without sellers and buyers knowing the equilibrium price in advance. The information premises must be understood as a basic first approach, and do not necessarily mimic the real market process. Demonstration of a discovery process under these information handling conditions is an important finding for an evolutionary market theory. Additional information-processing elements should augment the efficiency of the discovery process. The results of the simulated market process set out above raise new questions. The role of institutional elements (such as the relevance of demand flexibility or “certainty” of knowledge in the learning process, etc.) is discussed further outside the context of the simulation model, providing new insight into the market process.     

Firm survival in the German automobile industry

In this paper, methods of duration analysis are applied to investigate determinants of firm survival in the German automobile industry during the period 1886–1939. A new comprehensive data set has been assembled in order to secure data comparable to that for the US automobile industry. Our results show that the forces shaping the survival pattern of firms over the life cycle are quite similar in both countries, i.e. early entry in the life cycle and prior experience are associated with a lower risk of exit. This finding holds equally when parametric, semiparametric and nonparametric methods are applied.We thank the participants of the 10th conference of the International Schumpeter Society in Milan, June 2004, and the 31st EARIE conference in Berlin, September 2004, for helpful discussion. We also thank two anonymous referees for their comments. All remaining errors are in our responsibility.     

Imitation and the role of information in overcoming coordination failures

We consider minimum-effort games played in an arbitrary network. For a family of imitation behavioral rules, including Imitate the Best and the Proportional Imitation Rule, we show that inefficient conventions arise independently of the interaction structure, if information is limited to the interaction neighborhoods. In the presence of information spillovers, we provide a condition on the network structure that guarantees the emergence of efficient conventions. In contrast, if this condition is violated we will observe inefficient conventions, even in the presence of information spillovers.     

Endogenous structural change and crisis in a multiple time-scales growth model

The slow and endogenous twist of economic macro-structure makes up an important evolutionary feature of capitalist economies, and may be at the root of structural crisis. In this line, a Goodwinian growth model with increasing returns and profit-sharing that tries to picture a simple scenario of the seventies crisis is considered. It is shown that the exhaustion of the Kaldor-Verdoorn “productivity law” can entail, in a nonlinear framework, a “catastrophic” bifurcation from a “high” to a “low” growth path. Slow/fast dynamical systems then allow one to formalize a multiple time-scales dynamics where the growth path is shaped by the structural framework in which it takes place, but has also a long -un feedback. Structural change and crisis appear as long term and endogenous outcomes.     

Evolution of harvesting strategies: replicator and resource dynamics

Abstract. Economic theories of managing renewable resources, such as fisheries and forestry, traditionally assume that individual harvesters are perfectly rational and thus able to compute the harvesting strategy that maximizes their discounted profits. The current paper presents an alternative approach based on bounded rationality and evolutionary mechanisms. It is assumed that individual harvesters face a choice between two harvesting strategies. The evolution of the distribution of strategies in the population is modeled through a replicator dynamics equation. The latter captures the idea that strategies yielding above average profits are demanded more than strategies yielding below average profits, so that the first type ends up accounting for a larger part in the population. From a mathematical perspective, the combination of resource and evolutionary processes leads to complex dynamics. The paper presents the existence and stability conditions for each steady-state of the system and analyzes dynamic paths to the equilibrium. In addition, effects of changes in prices are analyzed. A main result of the paper is that under certain conditions both strategies can survive in the long-run. Correspondence to: J. Noailly     

Could institutional reform have saved Easter Island?

This paper extends the Brander and Taylor general-equilibrium model of population and resource management dynamics to a variety of institutional settings. The authors simulate the economic history of Easter Island, modifying the model to examine the impact of market institutions and different property-rights structures. The major finding of the paper is that modification of the economic institutions on Easter Island could have damped the feast-and-famine cycles that plagued its later history.     

Genetics, family structure, and economic growth

Recent biomedical research shows that roughly three-quarters of cognitive abilities are attributable to genetics and family environment. This paper presents a growth model that characterizes the role of the intergenerational transmission of genes and the effect of family environment on growth trajectories. If the average human or physical capital stocks are sufficiently low, the model shows that the economy will be caught in a poverty trap. Conversely, countries with more resources will converge to a bala nced growth path where the average rate of genetic transmission of skills from parents to children determines the long-run rate of output growth. Increased genetic diversity (or income inequality) is shown to raise the fertility rate and reduce output growth in the transitional dynamics. Thus, nature and nurture are able to explain a variety of countries' growth experiences.     

Sophisticated imitation in cyclic games

Individuals belonging to two large populations are repeatedly randomly matched to play a cyclic game such as Matching Pennies. Between matching rounds, individuals sometimes change their strategy after observing a finite sample of other outcomes within their population. Individuals from the same population follow the same behavioral rule. In the resulting discrete time dynamics the unique Nash equilibrium is unstable. However, for sample sizes greater than one, we present an imitation rule where long run play cycles closely around the equilibrium.     

Conventionalism,coordination, and mental models: from Poincaré to Simon

This article focuses on the conventions that sustain social interaction and argues that they are central to Simon's decision-making theory. Simon clearly identifies two kinds of coordination by convention: behavioral mores that shape human actions, and shared mental models that govern human perceptions. This article argues that Poincaré–Carnap's conventionalism provides powerful support for Simon's theory; it contends that this theory offers a more convincing account of decision and coordination than Lewis' concept of convention. Simon's approach to applying conventionalist logic to social interaction emphasizes the normative role played by mental models in solving coordination problems and considers rationality in terms of both cognitive and moral considerations. By connecting conventional phenomena to social identifications, Simon stresses the resulting complexity of coordination problems     

An evolutionary model of the size distribution of firms

An analytical study of the evolution of the distribution of firm size in an industry is presented. A drift-diffusion model is proposed to express the time-evolution of density of firm size within the industry. The model blends the conventional, more or less static, determinants with the kinds of dynamic considerations introduced by stochastic processes of evolutionary dynamics. The steady-state distribution as well as the dynamic behavior of the model are derived. Parameters in the resulting analytical expressions are then fit to a population of firms in the non-manufacturing service sector. The empirical portion of the paper validates the proposed evolutionary model.     

Knowledge, consumption, and endogenous growth

In neoclassical theory, knowledge generates increasing returns – and therefore growth – because it is a public good that can be costlessly reused once created. In fact, however, much knowledge in the economy is actually tacit and not easily transmitted –and thus not an obvious source of increasing returns. Several writers have responded to this alarming circumstances by affirming hopefully that knowledge today is increasingly codified, general, and abstract – and increasingly less tacit. This paper disputes such a trend. But all is not lost: for knowledge does not have to be codified to be reused and therefore to generate economic growth.     

Actions influenced by a social network

A simple framework is presented in which, each period, each of N individuals chooses among K alternatives. Individual actions are interrelated through a social network which arrays the strength of influence of each person on each other person. Emphasis is on the role of the network. The framework accommodates a variety of particular contexts, suggests theorems, and unifies a sizable part of the fragmented literature on network interaction.     

Competitive selection, self-organisation and Joseph A. Schumpeter

Post-Schumpeterians have tended to use biological analogies to understand economic evolution, in contrast to Schumpeter himself. In this paper it is argued that the biological analogies used tend to be outdated and that Schumpeter espoused an intuitive understanding of the evolutionary economic process that is closely related to modern conceptions of self-organisation, suitably adapted for application in socioeconomic systems. Using a self-organisation approach, competition can be understood without recourse to biological analogy, in terms of general systemic principles that operate in the presence of variety. Viewing economic evolution in terms of complex adaptation in self-organising systems yields nonequilibrium and nonlinear perspectives that parallel Schumpeter's own intuitions, reinvigorating them as the basis of evolutionary economic thinking in the new Millennium.     

Variety,growth and demand

A dynamic model of demand compatible with a changing composition of the economic system is presented in this paper. Consumers are not expected to have completely formed preferences for radically new objects of consumption. Consumers adopt new goods or services ,created by innovation, only if three barriers are overcome: 1) a critical (minimum) level of income, 2) critical human capital, 3) critical fitness. However, even a new good or service with a fitness higher than that of pre-existing ones, will not be immediately adopted. Consumers'.limited knowledge will slow down the rate of adoption of any new good or service.     

On bubbling dynamics generated by a stochastic model of herd behavior

This paper suggests a class of stochastic collective learning processes exhibiting very irregular behavior. In particular, there are multimodal long run distributions. Some of these modes may vanish as the population size increases. This may be thought of as “bubbles” persistent for a finite range of population sizes but disappearing in the limit. The limit distribution proves to be a discontinuous function of parameters determining the learning process. This gives rise to another type of “bubbles”: limit outcomes corresponding to small perturbations of parameters are different. Since an agent's decision rule involves imitation of the majority choice in a random sample of other members of the population, the resulting collective dynamics exhibit “herding” or “epidemic” features. RID="*" ID="*" We are grateful to two anonymous referees for the comments and suggestions. Correspondence to: L. Gaio     

Determinants of the diffusion of U.S. digital telecommunications

This paper examines the diffusion of digital switches from 1983 to 1996. It expands upon the existing literature by extending the data available back an additional six years and by adding independent companies such as Frontier, SNET and Cincinnati Bell. The data (graciously provided by DataQuest) indicate that the early period of adoption, which previous papers have been unable to examine due to lack of data, is significantly different than the later period of adoption. In the early period the installed base and the ability of larger networks to internalize more of the total benefits are the primary determinants of adoption, while the distribution of population becomes important in the later period as firms finish building out their densest areas. Overall, independents adopted earlier than the RBOCs, although this difference appears to be driven by the fact that independents were still using primarily electromechanical switches in 1983, while RBOCs had already invested heavily in analog technology. The data suggest that new technologies such as internet telephony will be adopted most rapidly by newly built networks such as Qwest and Level 3.     

The economic analysis of social customs: the case of pre-marital sex

This paper uses a sample of 18,876 adults aged 16-59 from to estimate logit equations of the determinants of support for the custom of abstaining from pre-marital sex. Three sets of equations are estimated separately for males and females; one set for disapproval of pre-marital sex, one set for disapproval of one night stands and another set for a proxy for involvement in pre-marital sex. These results confirm some expected male-female differences and also show a polarisation amongst the population in their support for, and observance of, customs and practices related to abstaining from sex before marriage.     

Stochastic Learning and the Evolution of Conventions

This paper shows that aspiration driven, stochastic learning processes can enable the members of a population to reach more efficient conventions, which are modeled as equilibria of a coordination game. As opposed to adaptation processes based on either myopic optimization or imitating behaviour, which generally select the risk dominant equilibrium, the present paper provides conditions under which the efficient equilibrium is selected, even if it is risk dominated by another equilibrium. Further, the impact of players' aspiration levels on the existence and local stability of a convention is analyzed. In general, higher aspirations induce more efficient outcomes. In addition, in the case of a local interaction structure there exist an inverse relation between the size of the individual neighbourhoods and the aspiration level required in order to sustain efficient outcomes.