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.     

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     

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.     

Regulation of the evolution of the architecture of a network by tensors operating on coalitions of actors

Socio-economic networks, neural networks and genetic networks describe collective phenomena through constraints relating actions of several actors, coalitions of these actors and multilinear connectionist operators acting on the set of actions of each coalition. We provide a class of control systems governing the evolution of actions, coalitions and multilinear connectionist operators under which the architecture of the network remains viable. The controls are the “viability multipliers” of the “resource space” in which the constraints are defined. They are involved as “tensor products” of the actions of the coalitions and the viability multiplier, allowing us to encapsulate in this dynamical and multilinear framework the concept of Hebbian learning rules in neural networks in the form of “multi-Hebbian” dynamics in the evolution of connectionist operators. They are also involved in the evolution of coalitions through the “cost” of the constraints under the viability multiplier regarded as a price.     

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.     

Religion and economic growth: was Weber right?

Evidence of falling wages in Catholic cities and rising wages in Protestant cities between 1500 and 1750, during the spread of literacy in the vernacular, is inconsistent with most theoretical models of economic growth. In The Protestant Ethic, Weber suggested an alternative explanation based on culture. Here, a theoretical model confirms that a small change in the subjective cost of cooperating with strangers can generate a profound transformation in trading networks. In explaining urban growth in early-modern Europe, specifications compatible with human-capital versions of the neoclassical model and endogenous-growth theory are rejected in favor of a “small-world” formulation based on the Weber thesis.     

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.     

What is the systems perspective to Innovation and Technology Policy(ITP) and how can we apply it to developing and newly industrialized economies?

Despite recent advances in the Evolutionary and Systems Perspectives to Economic Change (SI), confusion still exists about how to apply it to the design and implementation of Innovation & Technology Policy (ITP) in concrete settings. Since the ‘Normative’ aspects of SI are framed in terms so general to make them insufficient or inadequate as guides and tools for actual policymaking, a presumption exists that additional theoretical and conceptual knowledge is required. Thus a major objective of this paper is to contribute to the development of a realistic and ‘grounded’ theoretical framework for Technology and Innovation Policy which is particularly relevant both for the promotion of Business Sector R&D and of hi tech (especially IT) industries in Top Tier and other Industrializing Economies. A second objective is to contribute directly to the capability of successfully applying this conceptual framework in concrete policy settings. Rather than justifying ITP the paper focuses on characterising and applying “Salient Normative Principles or Themes” of the SI perspective to ITP. Several concrete examples are given and the notions of Policy Process, (Country) Program Portfolio Profile and Policy Environment are introduced.     

On the growth and welfare effects of monopolistic distortions

The most fundamental proposition about growth and competition is that there is a tradeoff between static welfare and long-term growth. This paper reconsiders this basic proposition in an expanding variety endogenous growth model with competitive markets for “old” innovative products and for a traditional good. We shed light on some implications of monopolistic distortions which tend to be ignored by standard models. First, no growth may be better than some growth, since modest positive growth potentially requires sizeable static welfare losses. Second, the economy may converge to a steady state with zero growth, even though a locally saddle-point stable steady state with positive growth exists if the initial share of “cheap” competitive markets is sufficiently high, as this implies a relatively low demand for “expensive” innovative goods. Third, such a “no-growth trap” may happen in a world economy made up of several countries engaged in free trade with each other. The policy implications are that growth-enhancing policies may be misguided and that quick deregulation as well as quick trade liberalization can lead to stagnation in the long term.      

Economic policy making in evolutionary perspective

Economic policy making is discussed from three different angles: the political economy of actual policy making (“what policy does do”), the analysis of policy instruments for given ends (“what policy could do”), and the debate on policy goals and their legitimization (“what policy ought to do”). Center stage in the evolutionary perspective is new, positive and normative knowledge which is unfolding during the policy making process and in its aftermath. It is argued that this implies regularities and constraints which extend and modify the comparative-static interpretations of public choice theory, economic policy making theory, and social philosophy. RID="*" ID="*" The author should like to thank three anonymous referees of this journal and the editor for helpful comments on an earlier version of the paper.     

A resource-based view of Schumpeterian economic dynamics

This paper seeks to offer a theoretical platform where the modern “resource-based view” of the firm might meet with evolutionary economics and the study of entrepreneurship, and with the economics of industrial organization. It does so by proposing the concept of the “resource economy” within which productive resources are produced and exchanged between firms. This is presented as the dual of the mainstream goods and services economy – where the “resource economy” captures the dynamic capital structure of the economy. The paper is concerned to bring out the distinctive principles governing resource dynamics in the resource economy, capturing competitive dynamics in such categories as resource creation, replication, propagation, exchange and leverage; evolutionary dynamics in terms of resource variation, selection and retention; entrepreneurial dynamics in terms of resource recombination and resource imitation, transfer and substitution; and industrial organizational dynamics in terms of resource configuration, resource complementarities and resource trajectories.     

Optimal balanced growth in a general multi-sector endogenous growth model with constant returns

I will study a multi-sector endogenous growth model with general constant returns to scale technologies and demonstrate the existence, uniqueness and the saddle-path stability of the balanced growth equilibrium. I will first demonstrate the existence of a balanced growth equilibrium, by showing that the balanced growth rate associated with the balanced growth equilibrium is solely determined by solving a Frobenius root problem of the price equations derived from the Euler equations and the property of the nonsubstitution theorem. Then I will show the saddle-path stability of the balanced growth equilibrium without any capital intensity conditions, which is a generalized property proved in the two-sector endogenous growth models by de Guevara et al. (J Econ Dyn Control 21, 115–143, 1997), Bond et al. (J Econ Theory 68, 149–173 1996) and Mino (Int Eco Rev 37, 227–251 1996). The theorem clearly implies that the balanced growth equilibrium has a transition path in the neighborhood of the balanced growth equilibrium. The paper was presented at the conferences “Irregular Growth: Beyond Balanced Growth” held on June 19–21, 2003 in Paris and “Economic Growth and Distribution: On the Nature and Causes of the Wealth of Nations” held on June 16–18, 2004 in Lucca, Italy. From the discussion with Alain Venditti at CNRS-GREQAM, Gerhard Sorger at University of Vienna and the conference participants, I have been benefited much by writing this paper. Especially Alain Venditte had given me a chance to take a look at his unpublished paper titled ” Indeterminacy and the Role of Factor Substitutability” jointly written with Kazuo Nishimura at Kyoto University and published in Macroeconomic Dynamics, Vol. 8. The author also would like to thank an anonymous referee for useful suggestions.     

A spectre is haunting the world – the spectre of global capitalism

Individual property rights are fruitful for economic development because they civilise self-interest by forcing it to serve the common good. The history of previous property rights “cycles,” however, shows that their ability to do this deterioriates over time because the laws of property fall under the control of those whom property is meant to discipline. Irresponsible ownership then intensifies inequality until a breaking point is reached. The present cycle is no exception, but its breaking point has been postponed by the growth of the democratically-inspired welfare state. Globalisation is now eroding the financial basis of this, because mobile capital can escape taxation, leaving labour to carry the burden. The main thrust of this movement is now found in the World Trade Organisation, whose control of intellectual property and commitment to free trade in money as well as goods, can only increase inequality between countries as well as within them. It represents individual property rights which are out of any form of social control, since there is no global mechanism for civilising self-interest. Schumpeter's sense of the impending demise of capitalism, if not of its replacement by socialism, may yet be vindicated.     

Random Price Discrimination

When a monopolist randomly sorts customers, price discrimination “concavifies” the revenue function of the firm, so that it may be optimal for a monopolist to divide customers into groups that have the same demand function and charge them different prices. It is impossible to rule out this type of result whenever the revenue function is somewhere convex in the “economically relevant” set of quantities, because there always exists a non-decreasing cost function that leads to that conclusion. It is also impossible to rule out the case where, with respect to monopoly, the firm raises or lowers price to all classes and, accordingly, the case where the social welfare decreases or increases. Received December 13, 2001; revised version received June 3, 2002 Published online: February 17, 2003 I am indebted to Carlo Beretta, Giuseppe Colangelo, Umberto Galmarini, Guido Merzoni, Gerd Weinrich and especially to Carla Peri for helpful discussions and comments. I have also benefited from insightful suggestions of three anonymous referees. Finally, I wish to thank participants to seminars at the Catholic University of Milan and University of Bologna. The usual disclaimer applies. Funds from MIUR are gratefully acknowledged.     

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.     

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.      

Economic Growth and (Re-)Distributive Policies in a Non-cooperative World

Many models show that redistribution is bad for growth. This paper argues that in a non-cooperative world optimizing, redistributing (“left-wing”) governments mimic non-redistributing (“right-wing”) policies for fear of capital loss if capital markets become highly integrated and the countries are technologically similar. “Left-right” competition leads to more redistribution and lower GDP growth than “left-left” competition. Efficiency differences allow for higher GDP growth and more redistribution than one's opponent. Irrespective of efficiency differences, however, “left-wing” governments have higher GDP growth when competing with other “left-wing” governments. The results may explain why one observes a positive correlation between redistribution and growth across countries, and why capital inflows and current account deficits may be good for relatively high growth.     

A class of fair distribution rules à la Rawls and Sen

Summary. This paper discusses and develops “non-welfaristic” arguments on distributive justice à la J. Rawls and A. K. Sen, and formalizes, in cooperative production economies, “non-welfaristic” distribution rules as game form types of resource allocation schemes. First, it conceptualizes Needs Principle which the distribution rule should satisfy if this takes individuals' needs into account. Second, one class of distribution rules which satisfy Needs Principle, a class of J-based Capability Maximum Rules, is proposed. Third, axiomatic characterizations of the class of J-based Capability Maximum Rules are provided. Received: July 30, 1999; revised version: March 11, 2002 RID="*" ID="*" We are grateful to an anonymous referee of this journal, Professors Marc Fleurbaey, Nicolas Gravel, Ryo-ichi Nagahisa, Prasanta Pattanaik, Kotaro Suzumura, Koich Tadenuma, and Yongsheng Xu for their fruitful comments. An earlier version of this paper was published with the title name, “A Game Form Approach to Theories of Distributive Justice: Formalizing Needs Principle” as the Discussion Paper No. 407 of the Institute of Social and Economic Research, Osaka University, and in the proceedings of the International Conference on Logic, Game, and Social Choice held at Oisterwijk in May 1999. That version was also presented at the 3rd Decentralization Conference in Japan held at Hitotsubashi University in September 1997, at the annual meeting of the Japan Association of Economics and Econometrics held at Waseda University in September 1997, and the 4th International Conference of Social Choice and Welfare held at University of British Colombia in July 1998. This research was partially supported by the Japanese Ministry of Education and the Ministry of Health and Welfare. Correspondence to: N. Yoshihara     

Where Schumpeter was nearly right – the Swedish model and Capitalism, Socialism and Democracy<--RID="*"-->

In Capitalism, Socialism and Democracy Joseph A. Schumpeter concluded that socialism would eventually displace capitalism in Western democracies. This would come about as a result of the superior performance of capitalism. We extract six “stylized” propositions that are essential elements of Schumpeter's prediction about the fate of capitalism. These propositions are confronted with the development of the Swedish economy. The three main results of the analysis are: (1) The evolution of the Swedish economy closely followed Schumpeter's predictions until about 1980: Large firms became increasingly predominant in production and innovative activity, ownership of firms became more and more concentrated, individual entrepreneurship waned in importance, the general public grew increasingly hostile towards capitalism, and by the late 1970s explicit proposals for a gradual transfer of ownership of firms from private hands were launched. (2) Design of tax and industrial policies fueled a development of the economy along the lines predicted by Schumpeter. In general, the policies discouraged private wealth accumulation. In particular, the policies favored concentration of firms and concentration of private ownership. (3) The turning point away from the path to socialism coincides with real world developments that disclosed two major flaws in Schumpeter's analysis. First, the ever more obvious failure of socialism in Eastern Europe went against Schumpeter's assertion that socialism can work. Second, Schumpeter, who thought that modern technology would make the giant corporation increasingly predominant, did not foresee the revival of entrepreneurship that took place in the Western countries around 1980.