Price versus quality competition: in search for Schumpeterian evolution mechanisms

Abstract

The paper extends the research program of modeling the Schumpeterian vision of innovative development in the Arrow-Debreu theory of general equilibrium. The core of this set-up is based on modeling the two fundamental forms of economic life distinguished by Schumpeter, namely the circular flow and economic development by specific extensions of the production system being part of the Debreu private ownership economy, so that the analysis includes static as well as dynamic forms. In this context the paper aims at studying the mechanisms of Schumpeterian evolution in the conceptual apparatus of the Hurwicz’s theory of economic mechanisms. To this purpose two kinds of mechanisms of Schumpeterian innovative evolution are studied. First, price mechanisms which include prices as an element of the message space, and second, qualitative mechanisms which, in addition, guarantee that the position of a group of agents will get better off with respect to the given criterion.