Evolutionary Economics Primary aim: make you acquainted to basic principles of the evolutionary approach to economics

Evolutionary Economics defined by its history: Capitalist evolution an open-ended process of qualitative change (driven by innovations) Innovations include institutional and organizational improvements of firms and the market context International trade and FDI reflect the interaction between innovation and diffusion of technology at a global scale Economic growth depends on the systemic properties of the imitations and technology diffusion that follow an innovation (Sectoral, Regional and National Systems of Innovation) Schumpeter highly critical of attempts to apply theories from the natural sciences to economics

For a survey of of literature on EE: Fagerberg, J (2003), Schumpeter and the revival of evolutionary economics: an appraisal of the literature (in Journal of Evolutionary Economics 13: )

Evolutionary processes: Competitive selection is analogous to Darwininan Natural selection (survival of the fittest) Economic change when a firm substitutes one mob for another firm = a repertoire of modes of behaviour (mob) mob = a rule (routine) for making decisions or for the production of a product in a multi-product firm. No average, profit-maximizing firm: A population of firms, where the probability for survival depends on realized profits.

Analogies to biology? Darwinian change: Natural selection where genes mutate by chance Lamarckian change: Routines (mob:s) are changed through learning

Haldane’s dilemma If the probability for genetic change is small, then the cost of genetic change (the ratio of ‘selective deaths’ to ‘survivors’) has to be high. But if the number of ‘selective deaths’ increases over a certain limit, the whole population will be eliminated Hence, the rate of genetic change has to be slow

Questions for discussion: 1)M. Friedman has argued that profit-maximiser are the only firms that will survive competitive selection. Thus, the assumption about profit maximisation in mainstream economics is the most adequate behavioural rule for predicting economic processes. Do you agree? 2)Assess the importance of a) Darwinian change and b) Lamarckian change. Does the two types of change make any difference for the policy-maker, for instance, with regard to type of social model to be implemented? 3)Do institutions for standardisation have any influence on growth by making mobs more or less uninvadable. Is a complete system of property rights prefereable?