Learning,market selection and the evolution of industrial structures

Industrial economics is a rich source of puzzles for economic theory. One of them — certainly the most discussed — regards the co-existence of firms (and plants) of different sizes, displaying rather invariant skewed distributions. Other puzzles, however, concern the sectoral specificities in industrial structures, the persistence of asymmetric corporate performances and the dynamics of entry and exit. The paper reports some preliminary results on evolutionary modeling of the links between the microeconomics of innovation, the patterns of industrial change and some observable invariances in industrial structures.First, the paper reviews a few of these empirical regularities in structures and in the patterns of change. Second, the paper discusses the achievements and limits of interpretations of the evidence based on equilibrium theories. Finally, it presents a model where these regularities are explained as emergent properties deriving from non equilibrium interactions among technologically heterogeneous firms. Moreover, simulation exercises show that also the intersectoral variety in the observed industrial structures and dynamics can be interpreted on the grounds of underlying specificities in the processes of technological learning — which is called technological regimes — and of the processes of market interactions — i.e. market regimes.This research has undertaken within an on going project sponsored by the Italian Research Council (CNR, Progetto strategico,Cambiamento tecnologico e sviluppo economico). Support by the Consortium on Competitiveness and Cooperation Centre for Research in Management, University of California at Berkeley is also gratefully acknowledged.     

The dynamics of international competitiveness

The Dynamics of International Competitiveness. — This paper focuses on the determinants of international competitiveness over the seventies and eighties. The theoretical framework adopted here is based on a “technology-gap” account of trade flows. The econometric analysis relies on a dynamic model estimated by pooling time-series across countries. The short- and long-term impacts of both technical change and labour costs on trade performance are investigated. It is found that technological variables (patents and investments) play a major role in shaping dynamics of exportshares, while labour costs asymmetries among countries appear to affect trade performance only in the short term.     

Norms as emergent properties of adaptive learning: The case of economic routines

Interaction among autonomous decision-makers is usually modelled in economics in game-theoretic terms or within the framework of General Equilibrium. Game-theoretic and General Equilibrium models deal almost exclusively with the existence of equilibria and do not analyse the processes which might lead to them. Even when existence proofs can be given, two questions are still open. The first concerns the possibility of multiple equilibria, which game theory has shown to be the case even in very simple models and which makes the outcome of interaction unpredictable. The second relates to the computability and complexity of the decision procedures which agents should adopt and questions the possibility of reaching an equilibrium by means of an algorithmically implementable strategy. Some theorems have recently proved that in many economically relevant problems equilibria are not computable. A different approach to the problem of strategic interaction is a “constructivist” one. Such a perspective, instead of being based upon an axiomatic view of human behaviour grounded on the principle of optimisation, focuses on algorithmically implementable “satisfycing” decision procedures. Once the axiomatic approach has been abandoned, decision procedures cannot be deduced from rationality assumptions, but must be the evolving outcome of a process of learning and adaptation to the particular environment in which the decision must be made. This paper considers one of the most recently proposed adaptive learning models: Genetic Programming and applies it to one the mostly studied and still controversial economic interaction environment, that of oligopolistic markets. Genetic Programming evolves decision procedures, represented by elements in the space of functions, balancing the exploitation of knowledge previously obtained with the search of more productive procedures. The results obtained are consistent with the evidence from the observation of the behaviour of real economic agents.     

Substantive and procedural uncertainty

Different sources of uncertainty are analysed and a representation of decision-making in principle consistent with behavioural evidence is proposed. The endogenous emergence of innovations, in the forms of unexpected events and novel behaviours is also examined.     

The microfoundations of business cycles: an evolutionary, multi-agent model

This work presents an evolutionary model of output and investment dynamics yielding endogenous business cycles. The model describes an economy composed of firms and consumers/workers. Firms belong to two industries. The first one performs R&D and produces heterogeneous machine tools. Firms in the second industry invest in new machines and produce a homogenous consumption good. Consumers sell their labor and fully consume their income. In line with the empirical literature on investment patterns, we assume that firms’ investment decisions are lumpy and constrained by their financial structure. Simulation results show that the model is able to deliver self-sustaining patterns of growth characterized by the presence of endogenous business cycles. The model can also replicate the most important stylized facts concerning micro- and macro-economic dynamics.     

The patterns of output growth of firms and countries: Scale invariances and scale specificities

This work brings together two distinct pieces of evidence concerning, at the macro level, international distributions of incomes and their dynamics, and, at the micro level, the size distributions of firms and the properties of their growth rates. Our contribution to the literature is twofold. First, our empirical analysis provides a new look at the international distributions of incomes and growth rates by investigating more closely the relationship between the two entities and the statistical properties of the growth process. Second, we identify the statistical properties that are invariant with respect to the scale of observation (country or firm) as distinct from those that are scale specific. This exercise proposes a few major interpretative challenges regarding the correlating processes underlying the statistical evidence.