The theory of the experimentally organized economy and competence blocs: an introduction

This article presents the theory of the experimentally organized economy and competence blocs. The theory assumes that information is immense and that economic actors are boundedly rational. This makes practically all economic activities to some extent uncertain and unpredictable; they become experimental in nature. Economic growth is, hence, viewed as an evolutionary process of the discovery, use and selection of knowledge. So-called competence blocs—the minimum set of agents with different, but complementary competencies required to generate and commercialize new combinations—are identified as necessary for efficient resource allocation. The incentives given by the institutions to the actors in the competence bloc are crucial for economic performance.     

Evolutionary developmental economics: how to generalize Darwinism fruitfully to help comprehend economic change

Darwinism is shown possible to generalize fruitfully to help comprehend economic change by drawing on evolutionary developmental biology (“evo–devo”)—its recent version, less concerned with replication of genes than with genomic instructing of development of organisms. The result is a conceptual model with multilevel applications, generalizing development as instructed self-organizing with inputs from environments, and evolution as experimental search for instructions making the development successful. Its economic interpretation suggests to unite several existing fields into evolutionary developmental economics, where economic change can be studied comprehensively as development instructed by actual institutional rules, intertwined with the evolution of these rules.     

Trade Integration as a Mechanism of Financial Crisis Prevention

We have created an eclectic model that synthesizes the different versions of the third generation exchange rate crises models. This eclectic model takes current existing schemes beyond the traditional analyses—based on causes and consequences of external financial crises in emerging markets—and raises trade openness as an effective mechanism to prevent and avoid foreign debt crises and exchange rate crises. Our findings give theoretical support to empirical economic literature about this topic because, at the present time, most of the studies connecting international trade and financial crises are basically empirical.     

Demand competition and investment heterogeneity in industries based on systemic technologies: evidence from the US long-distance telecommunications services industry, 1984–1996

Industries based on systemic technologies are often characterized by a dynamically evolving market structure. The market structure that provides the context for firms’ investment choices itself evolves due to the feedback effect of firms’ investments. In such cases, analyses of investment-performance relationship, purporting to explain sustainable competitive advantages, should ideally account for the endogeneity of the determinants of market structure—technology, demand, and policy—and firms’ investment choices. This paper focuses on the endogeneity of the demand-side determinants of market structure and firms’ demand-side investments under the assumed conditions of constant technology and policy environment. In doing so it contradicts the extant depiction of the evolution of industrial market structure in the above context as primarily caused by the evolution of underlying technological system in response to firms’ endogenous technological investments that generate sustainable competitive advantage for the dominant firms. A dynamic evolutionary model of demand competition captures the competition in the downstream market for basic industry product and its complements in an industry based on systemic technology during its post-interoperability stage. A natural experiment drawn from the US Long-distance telecommunications services industry during 1984–1996 allows testing the hypotheses drawn from the above model in a panel data setting.     

The Cambridge challenge to the Ricardian analysis of poverty

The Ricardian economists’ famous model of economic growth employed the Malthusian population doctrine, the law of diminishing returns, and the classical or iron law of wages. This analysis was based on utilitarian moral philosophy. The gloomy Stationary State conclusions of the Ricardian growth model — maldistribution of income and widespread poverty — were challenged by both economists and moral philosophers. A particularly important challenge was that offered by William Whewell (1794–1866), Professor of Moral Philosophy and the dominant figure at the University of Cambridge. Whewell is remembered today for his early contributions to mathematical economics. This article begins with a review of the Ricardian growth model. Next, Whewell’s system of moral philosophy is examined and the scientific and religious basis of Whewell’s antagonism to Ricardian economics is considered. After considering Whewell’s treatment of agricultural progress, economic classes, and rent doctrine, his own model of economic growth is analyzed. Finally, Whewell’s appraisal of the duty of government to those harmed by development is explored.     

Exchange and evolution

This paper offers an extension of the distinction of [Kohn, Cato Journal, 24:303–339 (2004)] between the two paradigms of modern economic theory—value and exchange—as derived from the generic–operant framework of [Dopfer and Potts, The general theory of economic evolution, Routledge, London, (2007)]. I argue that Austrian and evolutionary economics can be analytically unified about a general framework of rule coordination and change that I shall call the generic value paradigm. This is an analytic generalization of Kohn’s “exchange paradigm” that will allow us to redefine his conception of the “value paradigm” as the operational value paradigm in terms of the economics of known and fully exploited opportunities. The generic value paradigm, in turn, underpins the economics of the growth of knowledge and the evolution of the economic order as an open-system process due to the origination, adoption, and retention of novel generic rules. Austrian economics is then circumscribed as a special case of the more general “generic” analysis of the coordination and evolution of economic rules.      

Natural selection as a paradigm of opportunism in biology

The success of extant species is largely due to their ability to adapt in the face of constantly changing environmental conditions. Natural selection is the biological mechanism that takes advantage of opportunities to promote spontaneous variations and facilitate evolutionary development. The character of this biological opportunism is considered here, placing it firmly within the context of various social and economic principles—notably individualism, industrialism, utilitarianism and consequentialism—that have characterised the philosophy of the modern era. However, this purely opportunistic approach, and its myopic emphasis on immediate problem solving, has serious shortcomings within both life and business practice. These are examined here in contrast to some of the alternative approaches found in biology and economics theory. The nature and relationship of function to utility in biology is also given particular consideration, as is the issue of incrementalism in the development of complex adaptive features. The methodological reductionism at the heart of evolutionary biology certainly does offer insightful empirical results reported in the scientific literature. Nonetheless, natural selection is observed to be a purely reflexive mechanism and not one capable of producing the kind of innovation necessary for the more revolutionary changes in an organism’s systems.     

An evolutionary approach to regional systems of innovation

This article examines how the birth and the development of regional systems of innovation are connected with economic selection and points to implications for regional-level policies. The research questions are explored using an evolutionary model, which emphasizes geographical spaces and production of intermediate goods. In particular, we are concerned with how cooperative behaviour of technology producers is affected by the need to protect technological secrecies and of being financially constrained by firms demanding innovative input. Based on the theoretical model, we provide an analysis using computer simulations. The primary findings are, first, that the model generates predictions suited for empirical research as to the way in which economic selection influences cooperative behavior of innovative actors. Second, we demonstrate how a region’s entrepreneurial activity and growth can be controlled in a decentralized way by regions.     

边疆民族省份区域系统协调时空格局及发展机制——以云南省为例

以云南省为例,研究边疆少数民族省份区域系统协调发展演化特点。用熵值法分析1994—2008年间的时间序列、不同地域尺度的区域系统协调发展状况,得出云南省区域系统整体处于环境制约型,但处于不同发展阶段的市州其主要制约因素存在差异,区域发展总体遵循从经济制约型向资源、环境制约型转变,通过时、空角度分析发现云南省区域经济发展水平与系统协调度的关系存在一定程度的背离。应用基于VAR模型的格兰杰因果检验和脉冲响应函数剖析了云南省区域系统发展的驱动机制;并据此提出一些建议。     

Monetary and fiscal policy interactions in the EMU when cyclical conditions are uncertain

This paper examines economic policy interactions in the Economic and Monetary Union when the assessment of cyclical conditions in real time is surrounded by uncertainty. On the basis of a simple stylised model it shows that with a Nash-type of interaction different views about the output gap on the side of the policy players—the Council of the European Union, the European Commission and the European Central Bank—can give rise to excessive activism with policy players pushing economic variables into opposite directions. It argues that the costs of such policy conflicts can be reduced by agreeing on a common assessment of the cycle, by constraining policy variables, and/or by increasing the weight of fiscally conservative institutions. An alternative option to sidestep policy conflicts ensuing from diverging views of the cycle is to take policy decisions sequentially, as is the case in a Stackelberg-type of interaction. The paper shows that for a given misperception of the cycle, the impact on the policy instruments and on output and inflation are generally smaller in the Stackelberg equilibrium as compared to a Nash outcome. Alternative allocations of roles—that is leader versus follower—are discussed and assessed.

Interregional Trade Linkages and the Commercial Role: The Spanish Case

The development of a national or regional economy depends on its own actions as much as on those of its commercial partners. Trade transmits economic events from one economy to another. The type and the degree of interdependence between territories—regions or countries—determines the consequences of external actions in a region. Multipliers translate the effects of a change in one variable on the others. Using an input–output scheme to express interregional commercial flows, some coefficients are developed to classify and identify the role that each region plays in interregional trade. An empirical application of the methodology on Spanish Comunidades Autonomas is presented. A preliminary version of this paper was presented at the Fifty-Eight International Atlantic Economic Conference, Chicago, October 7–10, 2004. The authors greatly appreciate the comments and suggestions from the participants at the meeting. The authors also wish to thank an anonymous referee and editor for their constructive suggestions and comments. This research was partially supported by the DGI project SEJ2004-07924/ECON.     

Estimating a socially optimal water price for irrigation versus an environmentally optimal water price through the use of Geographical Information Systems and Social Accounting Matrices

This article develops a method for establishing water prices and their effects in order to provide policy makers an environmentally and socially optimal range of regional prices for irrigation water. Two prices are determined. The “environmentally optimal price” of water is defined as the one that internalizes the environmental costs generated by agricultural consumption. The “social optimally price” of water is defined as the one that maximizes levies on water for agriculture without affecting the regional economy. The environmentally optimal price is calculated with an economic model built over a Geographical Information System (GIS) that allows the economic quantification and valuation of the environmental cost of water in different basins. The optimal price is calculated with a demand curve for irrigation water introduced into a Social Accounting Matrix (SAM) to observe if the regional economy can accept higher prices without affecting the regional GDP. Potential water prices are established, ranging from prices that minimize the negative impact in the regional economy to those that totally internalize the environmental cost of water.     

Symposium on New Directions in Fiscal Federalism: An Introduction

Issues of fiscal federalism—broadly defined to includethe tax, expenditure, and debt policies of different levelsof government, as well their interaction—have attractedheightened attention from academics and policymakers alike.Global changes in institutional structures and economic conditionswithin and among countries, including fiscal, economic and politicalreforms, have highlighted the importance of the division offiscal and political responsibilities among governments. Competitionamong governments, as well as the development and evolutionof mechanisms of horizontal and vertical fiscal coordinationand cooperation among them, have been the subject of a rapidlydeveloping literature. Better understanding of the fiscal policiesand interactions of governments, and of their institutionaland political underpinnings, presents deep intellectual challengesas well as opportunities for useful policy applications. The five papers in this symposium are a selection of papersbased on keynote addresses presented at a September 2006 conferenceon "New Directions in Fiscal Federalism"     

Sociology of economics or sociology of economy? theoretical-methodological arguments for sociological economics

This paper makes a proposal for reintroducing sociological or social economics into contemporary economic science. Such a reintroduction is proposed to be substantive, by analyzing the social structuring of the economy, and formal, by including sociological/social economics in the current (JEL) classification system of economic disciplines (code A.15). Both epistemological and ontological arguments can be presented to support the proposal. Epistemological arguments invoke the presence of essential components of sociological economics in the development of economic thought, and ontological arguments stress the role of social factors in economic life. In this paper I present primarily epistemological (theoretical-methodological) arguments for sociological economics, and secondarily ontological ones. I show that the present designation, sociology of economics, is something different from sociological or social economics in that the former refers to economic epistemology (knowledge) and the latter to economic ontology (reality). I conclude that, in addition to a sociology of economic science, we need a sociology of economic life. There is nothing surprising in the habit of economists to invade the sociological field. A major part of their work—practically the whole of what they have to say on institutions and on the…[social] forces which shape economic behavior—inevitably overlaps the sociologist’s preserves. In consequence, a no man’s land or everyman’s land has developed that might conveniently be called economic sociology … [or sociological economics] (Schumpeter 1956:134). The author is grateful to two anonymous referees for their constructive comments on an earlier version of this article.     

Creditor protection and the dynamics of the distribution in oligarchic societies

This paper analyzes the impact of weak contracting institutions on economic development and the wealth distribution in a Ramsey-type growth model. We show that, at low levels of accumulation, weak contracting institutions strongly favor the economic elite: By preventing market entry, such institutions provide the “oligarchs” with cheap access to credit—which is highly beneficial as long as capital is scarce. At the same time, a broad cross-section of society faces only low returns so that capital accumulation is slowed down and the capital stock gets concentrated in the hands of the elite. At higher levels of development, however, weak contracting institutions are harmful to all segments of society and institutional reform becomes unanimously supported. So the model helps to explain the pervasiveness of weak contracting institutions in less-advanced economies.     

The Green Solow model

We argue that a key empirical finding in environmental economics—the Environmental Kuznets Curve (EKC)—and the core model of modern macroeconomics—the Solow model—are intimately related. Once we amend the Solow model to incorporate technological progress in abatement, the EKC is a necessary by product of convergence to a sustainable growth path. We explain why current methods for estimating an EKC are likely to fail; provide an alternative empirical method directly tied to our theory; and estimate our model on carbon emissions from 173 countries over the 1960–1998 period.     

Global financial crisis as a phenomenon of stock market overshooting

Inspired by Dornbusch’s model of exchange rate overshooting we develop a theory of stock market behaviour and its impact on the real economy. The idea is that stock market prices overshoot and undershoot their long-run equilibrium values which are determined by the development in the real economy. The overshooting is triggered primarily by a loose monetary policy. With our model we explain the genesis of the global financial crisis (GFC) 2008/2009 primarily as the result of a loose monetary policy in the USA. Following the overshooting and crash in the stock market the real economy dropped into a recession. After modelling the interaction of three markets with different speed of adjustment—money, stocks and goods—for a closed economy we expand it to an open economy and lastly study the spillovers of a financial market crisis between countries (from a large to a small country) by introducing the transmission channels of external trade or cross-border financial transactions. A long-lasting monetary easing as exhibiting by the Fed and the ECB since 2007 and 2008, respectively could—according to our model—generate another boom-bust cycle.     

Evolutionary macroeconomics: a research agenda

In this article, the goal is to offer a new research agenda for evolutionary macroeconomics. The article commences with a broad review of the main ideas in the history of thought concerning the determinants of economic growth and an introduction to the evolutionary perspective. This is followed by a selective review of recent evolutionary approaches to macroeconomics. These approaches are found to be somewhat disconnected. It is argued that the ‘micro-meso-macro’ approach to economic evolution is capable of resolving this problem by offering an analytical framework in which macroeconomics can be built upon ‘meso-foundations’, not micro-foundations, as asserted in the mainstream. It is also stressed that the economic system and its components are complex adaptive systems and that this complexity must not be assumed away through the imposition of simplistic assumptions made for analytical convenience. It is explained that complex economic systems are, at base, energetic in character but differ from biological complex systems in the way that they collect, store and apply knowledge. It is argued that a focus upon stocks and flows of energy and knowledge in complex economic systems can yield an appropriate analytical framework for macroeconomics. It is explained how such a framework can be connected with key insights of both Schumpeter and Keynes that have been eliminated in modern macroeconomics. A macroeconomic framework that cannot be operationalized empirically is of limited usefulness so, in the last part of the article, an appropriate methodology for evolutionary macroeconomics is discussed.     

The Economics and Bioeconomics of Folk and Scientific Classification

Synopsis This paper is the product of a collaboration between a biologist (Ghiselin 1997) who works on the philosophy of classification and an economist (Landa 1981, 1994) who works on the ‘Economics of Identity’: how and why people classify people based on identity in the context of a theory of ethnic trading networks. In developing the ‘bioeconomics’ (the synthesis of economics with biology) of classification, we crossed a number of disciplinary boundaries—anthropology, economics, sociology, biology, and cognitive psychology including evolutionary psychology’s ‘fast and frugal’ heuristics. Using a bioeconomics approach, we argue that folk classifications—the classifications used by ordinary persons—have much in common with scientific classifications: underlying both is the need for economy of information processing in the brain, for the efficient organization of knowledge, and for efficiency of information acquisition and transmission of information to others. Both evolve as a result of trial and error, but in science there is relatively more foresight, understanding, and planning.     

Economic impact of ocean fish populations in the global fishery

Our goal in this paper is to estimate the total output in an economy that is currently dependent (at least partially) on current fisheries output. We therefore applied the Leontief technological coefficients at current production and then estimate total output supported throughout the economy at the current level of production. Estimates of gross revenue from capture fisheries suggest that the direct value of output for this sector is US $80–85 billion annually (Sumaila et al., Journal of Bioeconomics 9(1):39–51, 2007; Willmann et al., The Sunken Billions, World Bank, FAO, Washington DC, Rome, 2009). However, as a primary or a potential economic base industry, there are a vast number of secondary economic activities—from boat building to international transport—that are supported by world fisheries, yet these related activities are rarely considered when evaluating the economic impact of fisheries. This study applies an input–output methodology to estimate the total direct, indirect, and induced impact of marine capture fisheries on the world economy. While results suggest that there is a great deal of variation in fishing output multipliers between regions and countries, when we apply the output multipliers to the capture fisheries sector at the global level, we find that significant indirect and induced effects place the impact of this sector to world output nearly three times larger than the value of landings at first sale, at between US $80–85 billion annually (Sumaila et al., Journal of Bioeconomics 9(1):39–51, 2007; Willmann et al., The Sunken Billions, World Bank, FAO, Washington DC, Rome, 2009). However, as a primary or a potential economic base industry, there are a vast number of secondary economic activities—from boat building to international transport—that are supported by world fisheries, yet these related activities are rarely considered when evaluating the economic impact of fisheries. This study applies an input–output methodology to estimate the total direct, indirect, and induced impact of marine capture fisheries on the world economy. While results suggest that there is a great deal of variation in fishing output multipliers between regions and countries, when we apply the output multipliers to the capture fisheries sector at the global level, we find that significant indirect and induced effects place the impact of this sector to world output nearly three times larger than the value of landings at first sale, at between US 225 and 240 billion per year.