Breaking the Bonds of Biology – Natural Selection in Nelson and Winter’s Evolutionary Economics

Abstract

In their 1982 book, “An evolutionary theory of Economic Change”, Nelson and Winter (An evolutionary Theory of Economic Change, The Belknap Press of Harvard University Press, Cambridge, 1982) develop several detailed quantitative models that are explicitly based on an analogy with biological evolution. These models have analogues of mutation, selection and heredity and seem to explain economic change in an industry as an evolutionary process. In the most complex of these models, change is the product of two complementary mechanisms: a mechanism where profitable firms increase their capital stock while unprofitable firms shrink, and a mechanism whereby unprofitable firms innovate to improve their production efficiency. Analysis of the model suggests that it plausibly involves evolution by natural selection in an important sense of the term, but also that both of the mechanisms involved exert selection pressure on the population. Furthermore, part of the apparently evolutionary change in the model involves the growth of firms, rather than reproduction in anything resembling the sense presumed by standard accounts of evolution by natural selection. I consider how the significant differences between Nelson and Winter’s evolutionary models and those of biology illuminate the general nature of evolutionary explanations, particularly the roles of selection and novelty, and discuss how this can serve as a guide to evolutionary modelling generally.