Conventions,local interaction,and automata networks

This paper deals with the evolution of conventions in a finite population of boundedly rational players. We apply methods from the theory of automata networks to analyze the effects of different interaction structures. It is shown that the size of the reference group for each player has an important impact on the evolutionary stability of a particular convention, and that the interaction structure crucially determines the distribution of conventions in the population.     

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.     

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.     

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.     

Knowledge of growth and the growth of knowledge

The central theme of this address is the complicated relationship between the growth of the economy and the growth of knowledge. This theme is explored with the help of a single concept “restless capitalism” which is used to capture the idea that capitalism in equilibrium is a contradiction in terms precisely because the growth of knowledge cannot be meaningfully formulated as the outcome of a constellation of equilibrating forces. This theme is explored through a discussion of growth accounting, the relationship between innovation, markets and institutions and, as an example, the development of innovation in the field of ophthalmology. We also discuss some pioneering contributions made by Simon Kuznets and Arthur Burns to the discussion of evolutionary growth. From this Schumpeterian perspective we see the economy as an ensemble not an aggregate entity and so see more clearly the importance of microdiversity in the relationship between growth of knowledge and growth of the economy.     

The learning economy and embodied knowledge flows in Great Britain

This paper examines the `learning economy' from the perspective of occupational characteristics and changes in the British labour market between 1980 and 1992. Following a discussion of the learning and knowledge economy, cross-sectional employment data are analysed to ascertain which occupations can be classified as knowledge-based. Longitudinal career history data are then used to trace the flows of these `knowledge workers' over time. Sectoral shifts are examined, with a particular focus on the knowledge-intensive service sectors. The data come from the Employment in Britain survey: a large-scale employee survey from 1992. The approach used allows us to measure somewhat intangible aspects of economic behaviour such as learning and tacit knowledge and attempt to trace their flows. Shifts in knowledge from the manufacturing to the service sector are shown to be important and related to previous work which demonstrated the importance of knowledge intensive business services for both output and productivity in manufacturing.     

Barriers to knowledge spillovers and regional convergence in an evolutionary model

This paper will present a multi-region/multi-country model in which inter-regional knowledge spillovers determine the growth of regions. Key parameters in the model are the learning capability of a region and the rate of knowledge generation (R&D). The intensity of spillovers depends on geographical distance between regions. The model is investigated by means of simulation techniques. What results is a core-periphery situation, the exact form of which depends on the assumed spatial structure. The impact of economic integration is investigated by introducing barriers-to-knowledge-spillovers in the model in the form of borders between countries. Contrary to the popular belief and some economic theories, we find that removing such spillover barriers may result in larger disparity of income levels between regions.     

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.     

A comparison of diffusion approximations and actual limits in birth and death processes of noisy evolution

The stationary distribution of a birth and death process may not be approximated by a diffusion. The general situation is illustrated on the “musical chairs” model by Binmore et al. (1995). This model is shown to generate outcomes which are not captured by the concept of the ultralong run equilibrium selection introduced in Binmore et al. (1995).     

The economic contribution of information technology: Towards comparative and user studies

By what process does technical change in information technology (IT) increase economic welfare? How does this process result in increases in welfare at different rates in different countries and regions? This paper considers existing literature on measuring the economic benefits from information technology, emphasizing comparative issues and user studies. Following Bresnahan and Trajtenberg (1995), we call the invention associated with customizing the technological frontier to the unique needs of users in particular regions “co-invention”, placing emphasis on understanding how its determinants vary across users in different regions. We develop a framework for understanding the processes behind value-creation, demand-side heterogeneity and co-inventive activity. Then we discuss why these processes make measuring the welfare benefits from advances in information technology particularly difficult. We highlight the metrics currently available for measuring the economic pay-out of the IT revolution and identify which of these vary meaningfully in a comparative regional context. Finally, we finish with observations about further areas of research.     

Knowledge and markets

An economy is a coordinated system of distributed knowledge. Economic evolution occurs as knowledge grows and the structure of the system changes. This paper is about the role of markets in this process. Traditionally, the theory of markets has not been a central feature of evolutionary economics. This seems to be due to the orthodox view of markets as information-processing mechanisms for finding equilibria. But in economic evolution markets are actually knowledge-structuring mechanisms. What then is the relation between knowledge, information, markets and mechanisms? I argue that an evolutionary theory of markets, in the manner of Loasby (1999), requires a clear formulation of these relations. I suggest that a conception of knowledge and markets in terms of a graphical theory of complex systems furnishes precisely this.     

Routines and incentives in group tasks*

The artificial context “Target the Two” has been used in experiments to explore some of the features of routinization and learning. Two agents must learn to coordinate their actions to achieve a common goal, without being allowed to use verbal communication. This article reports an experiment, in which we compare the degree of routinization and the performance of players in two treatments. Each treatment submits players to the same sequence of starting configurations, but differs in terms of the payoff function. In the first treatment (A), the payoff is based on the number of moves required to achieve the goal, whereas in the second treatment (B) the payoff depends on the time required for completion. We observe that (1) in treatment B subjects tend to play in a more “routinized” way and (2) treatment B reduces the time spent on play, but does not decrease the resources (the number of moves) used, relative to treatment A.     

Market institutions and economic evolution

Our cognitive limitations cause us to rely on institutions to guide reasonable behaviour; market institutions reduce the costs of search, negotiation, and monitoring entailed in making single transactions. The making of markets requires an investment of immaterial capital, the major share of which typically is provided by those who expect to be very active on one side of the market. This `external organisation' provides producers with information for the development of new products; by simplifying transactions it also allows consumers greater scope for developing consumption capabilities. Thus the evolution of institutions guides the evolution of goods and services.     

The old and the new: the evolution of polymer and biomedical clusters in Ohio and Sweden

This paper examines the rapid growth of the polymer-based and biomedical clusters in Ohio and Sweden – two regions of similar size and with similar traditions undergoing similar industrial restructuring. Two issues are addressed: First, why has growth been so strong in these particular clusters, i.e., can we identify the sources of the growth and dynamics in these sectors? Second, why do these two clusters differ in Ohio and Sweden in terms of size, level and type of activity, number and composition of actors, size structure of firms and growth patterns over the last couple of decades? In particular, what is the role of public policies as well as cultural, historical, and geographic factors? Our main conclusions are (1) that there is strong path dependence in both clusters in both countries, and (2) that the key to rapid development is a high absorptive capacity combined with rapid diffusion to new potential users. Our policy discussion addresses these issues.     

Schumpeter and the revival of evolutionary economics: an appraisal of the literature

During the last two decades we have seen a revival of interest in the works of Joseph Schumpeter and “evolutionary” ideas in economics more generally. A professional society honouring Schumpeter's name has been founded, and linked to it we have had for more than fifteen years now a professional journal devoted to this stream of thought. However, it has been argued that, despite these developments, the link between Schumpeter's own work and the more recent contributions to evolutionary economics is in fact rather weak. This paper considers this claim. Based on an analysis of Schumpeter's contribution to economics the paper presents an overview and assessment of the more recent literature in this area. It is argued that although there are important differences between Schumpeter's work and some of the more recent contributions, there nevertheless remains a strong common core that clearly distinguishes the evolutionary stream from other approaches (such as, for instance, so-called “new growth theory”). RID="*" ID="*" Many people have contributed to this paper in various ways. Jon Hekland at the Norwegian Research Council started it all by asking me to make an overview of the contribution from “evolutionary economics” to our understanding of contemporary economies. Several people helped me on the way by supplying written material, comments and suggestions, and I am indebted to all of them. Brian Arthur, Stan Metcalfe, Keith Pavitt, Erik Reinert, Paolo Saviotti and Bart Verspagen may be particularly mentioned. A preliminary version was presented at the conference “Industrial R&D and Innovation Policy Learning – Evolutionary Perspectives and New Methods for Impact Assessment” organised by the Norwegian Research Council (“SAKI”) at Leangkollen, Asker, April 18–19.2002. I wish to thank the discussant, Tor Jakob Klette, and the participants at the conference for useful feedback. Moreover I have benefited from comments and suggestions from the editors and referees of this journal. The final responsibility is mine, however. Economic support from the Norwegian Research Council (“SAKI”) is gratefully acknowledged.     

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.     

Capitalism, profits and innovation in the new techno-economic paradigm

Innovative profits (of the kind conceptualized by Schumpeter) are today being increasingly created through international corporate networks for technological development. Such profits through innovation are encouraged by newer more flexible organizational forms, and further encouraged (unlike in the conventional perspective on profits and on the incentive to innovate) by knowledge flows between firms. Our empirical evidence, based on US patent data, shows that multinational companies are currently more likely to develop abroad technologies which are less science-based, and less dependent upon tacit knowledge. However, within the science-based industries firms may generate abroad some technologies which are heavily dependent on tacit knowledge, but normally in fields that lie outside their own core technological competencies. We find some evidence of a convergence in corporate technological diversification across large firms, facilitated by the now common spread in the use of information and communication technologies (ICT) as an integrator of formerly separate technological systems. This has led smaller firms to diversify, but giant firms to consolidate activity around those technologies that have become most interrelated.     

Capitalism and democracy in the 21st Century: from the managed to the entrepreneurial economy*

 This paper explains how and why the developed countries are undergoing a fundamental shift away from a managed economy and towards an entrepreneurial economy. This shift is shaping the development of western capitalism and has triggered a shift in government policies away from constraining the freedom of business to contract through regulation, public ownership and antitrust towards a new set of enabling policies which foster the creation and commercialization of new knowledge. The empirical evidence from a cross-section of countries over time suggests that those countries that have experienced a greater shift from the managed to the entrepreneurial economy have had lower levels of unemployment.     

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.     

Capitalism and democracy at a crossroads: the civilizational dimension

This paper evaluates Schumpeter's grand vision as reflected in his Capitalism, Socialism and Democracy, and elaborates it in conjunction with the so-called “globalization” trends characteristic of the wake of the twenty-first century. In addition to the evolutionary nature of his methodology, the institutionalist dimension of Schumpeter's definitions are brought to light. A case is made for a fundamental process of “uncreative destruction” as far as the institutional setup of the economy is concerned. The contention of this paper is that there is ample support in Schumpeterian analysis for a counterpoint to the liberal thesis that envisages the worldwide spread of individualism, market economies, and democratic forms of government.