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Investigations into Schumpeterian Economic Behaviour using Swarm Craig Lynch Macquarie University (Graduate School of Management) Sydney, Australia.

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Presentation on theme: "Investigations into Schumpeterian Economic Behaviour using Swarm Craig Lynch Macquarie University (Graduate School of Management) Sydney, Australia."— Presentation transcript:

1 Investigations into Schumpeterian Economic Behaviour using Swarm Craig Lynch Macquarie University (Graduate School of Management) Sydney, Australia

2 Structure of Presentation BackgroundTheoryResearchObjectives DesignApproach RandomInnovation Risk / EntrepreneurCompetencyPredatorBehaviourR&DInvestment Imitation & MarketingDefense Scenario Outcomes AnalysisSummaryFutureDirections

3 Background Theory Theory of Economic Development (Schumpeter) Evolutionary Economics Industrial Dynamics Creative Destruction Strategic Decision-Making by Firms Role of Entrepreneur & Innovation Population Focus Convergence

4 Schumpeterian Focus Entrepreneurs Random Innovation Risk & Availability of Credit Competitive Behaviour (and Inter-firm dynamics) Predator Behaviour R&D Investment Imitation & Mktg Defense Strategic Choices

5 Research Objectives  Explore economic and competitive behavioural concepts (identifying optimum conditions) for: 1. Random innovation within firms 2. Availability of credit and differentiation of supply to entrepreneurial candidates 3. Predator behaviour amongst firms 4. Innovation investment and firm growth 5. Imitation and marketing defence investments associated with firm growth and survival 1. NOTE: “Optimum conditions” represents maximum GDP at economy level, numbers of firms, profit levels, and persistence of profit (Roberts 2001)

6 Foundation – Bruun and Luna Model Each agent a consumer and individual artisan (producer), at time 0 Ongoing supply and demand between producers, start-up firms, effective firms with workers, and consumers Consumers purchase via shopping cart concept within 2D toroidal landscape, seeking fulfilment within 8 neighbours (Moore neighbourhood) Entrepreneur evaluates fulfilment history of neighbours, leads to start-up firm by hiring producers (creating workers), then to establish firm Account maintained for all agents, used in bankruptcy business rule Agent as consumer Agent as potential entrepreneur

7 Foundation – Bruun and Luna Model (2000) Environmental settings: Bankruptcy level Probability of consumer switching from effective firm Probability that firm will dissolve for non-bankruptcy reasons Degree of profit sharing between entrepreneur and workers Confidence threshold (for entrepreneurs in evaluating hiring workers) Sample graphical display of agent types under different bankruptcy levels: Independent producer Entrepreneur with start-up firm Worker employed by entrepreneur Entrepreneur with effective firm

8 Extended Agent Attributes  Artificial internal firm attributes: Product attractiveness level Product attractiveness level Increments as result of innovation, influences consumer purchasingIncrements as result of innovation, influences consumer purchasing Financial stability level Financial stability level Increments with sales continuity, decrements with multiple investment types (predator behaviour, R&D investment, imitation/marketing defence investments)Increments with sales continuity, decrements with multiple investment types (predator behaviour, R&D investment, imitation/marketing defence investments) Entrepreneur competency level Entrepreneur competency level Required for credit availability / risk assessment by banks, increments based on firm start-up & formation successRequired for credit availability / risk assessment by banks, increments based on firm start-up & formation success

9 Extended Parameters (Probability/Likelihood Levers)  Innovation randomness  Availability of credit  Dissolution of effective firms  Predator behaviour (& industry option)  Strategic R&D investment (& type option)  R&D effectiveness  Imitation investment (& type option)  Marketing defence

10 Scenario Modules Stage 0 Foundation Model Stage 1 Random Innovation Stage 2 Credit Availability Stage 3 Predator Behaviour Stage 4 R&D Investment Stage 5 Imitation and Marketing Defence Investment Product attractiveness level Financial stability level Entrepreneur competency level Product attractiveness level Financial stability level Product attractiveness level Financial stability level Product attractiveness level Financial stability level MOST SENSITIVE... Bankruptcy level Profit sharing Consumer shift likelihood Innovation randomness likelihood Availability of credit likelihood Dissolution of effective firms likelihood Predator behaviour likelihood R&D investment likelihood R&D effectiveness likelihood Imitation investment likelihood Marketing defence investment likelihood ATTRIBUTES LEVERS

11 Generic Execution Environment  Swarm ABM engine  20 x 20 (400 agent) population  Standard and consistent Bruun & Luna baseline settings to achieve “healthy” GDP profile  2 time periods: (with detailed data capture) (with detailed data capture) (macro GDP analysis only to determine longer-term trends) (macro GDP analysis only to determine longer-term trends)

12 Scenario Outcomes – Stage 1 (Random Innovation Impact) Outcome:  LOW random innovation results in marginally higher GDP than baseline and other innovation settings BaselineLOW Random Innovation setting Parameter settings:  High, Med-High, Med, Low, V. Low random innovation likelihood

13 Innovation Randomness Seed: 100(High) Innovation Randomness Seed: 1,000(Medium - High) Innovation Randomness Seed: 10,000(Medium) Innovation Randomness Seed: 100,000(Low) Innovation Randomness Seed: 100,000,000(Very Low)

14 Scenario Outcomes – Stage 1 (Random Innovation Impact)  No. effective firms highest at low to medium random innovation settings

15 Scenario Outcomes – Stage 1 (Random Innovation Impact)  Persistence of profit calculations show LOW random innovation firms with lowest levels Innovation Randomness Seed No. Effective Firms Average Duration of Firm (Time Periods) Average Net Account Level per Firm Persistence of Profit (Average Net Account Level per Firm Duration) 100 (High) , ,000 (Med – High) , ,000 (Medium)1191,46544, ,000 (Low)1221,42025, ,000,000 (V. Low)1231,47191,10253

16 Scenario Outcomes – Stage 2 (Risk / Entrepreneur Competency) Outcome:  Optimum GDP values when both credit availability and firm dissolution settings are HIGH BaselineHIGH credit availability and HIGH firm dissolution likelihood Parameter settings:  High, Med, Low combinations of credit availability & effective firm dissolution

17 Scenario Outcomes – Stage 2 (Risk / Entrepreneur Competency)  Effective firms formed only in high credit availability circumstances  Maximum no. firms for HIGH/HIGH combination, but lower persistence of profit

18 Scenario Outcomes – Stage 3 (Predator Behaviour) Outcomes:  Similar GDP results for all predator settings, for both industry grouping settings  Maximum no. firms for LOW predator behaviour, with persistence of profit calculations steady for all scenarios Parameter settings:  V. High, High, Med, Low, V. Low predator behaviour likelihood

19 Scenario Outcomes – Stage 4 (R&D Investment Impact) Proportional InvestmentNon-Proportional Investment VERY HIGH Investment & Effectiveness HIGH Investment & Effectiveness Worst GDP profiles

20 Scenario Outcomes – Stage 4 (R&D Investment Impact)  GDP profiles similar with exception of very high investment and effectiveness, for both types of investment  Medium investment and effectiveness produces higher no. firms earlier, BUT least persistence of profit  Proportional investment more positive for Very High Investment / Low effectiveness Proportional InvestmentNon-Proportional Investment

21 Scenario Outcomes – Stage 5 (Imitation / Marketing Defence Impact)  2 scenarios of LOW defence produce best GDP results  Medium investment & defence shows GDP decline late in cycle time period LOW imitation / LOW defence HIGH imitation / LOW defence MED imitation / MED defence

22 Scenario Outcomes – Stage 5 (Imitation / Marketing Defence Impact)  Maximum no. firms for LOW imitation / LOW defence scenario, AND best persistence of profit outcome  No significant difference between proportional and non- proportional investment  Firms running “in the red”

23 Analysis Summary  Essential to analyse at both macro and micro level  Small amount of random innovation beneficial for economy (not excessive, however) But not for firm profit But not for firm profit  Mixed results (GDP, no. firms, profit persistence) for credit / dissolution scenarios  Low sensitivity for predator behaviour scenarios, but higher profit for LOW setting (marginal)  Medium R&D investment & effectiveness optimum combination for economy but not for firms  Low imitation / Low marketing defence optimum for all measures

24 Future Directions  Establish credit creation through entrepreneur activity, with imitation “swarms”  Establish conditions and logic for business cycles (Schumpeter theory)  Establish production dynamics for firms and tiered industry structures (intermediate firms and product structures)  Multiple, concurrent competitive strategy execution by firms  Focus on firm balance sheets and P&L


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