Evolutionary Economic Models Research Articles

TOWARDS AN EVOLUTIONARY ECONOMIC THEORY

Today, the neoclassic economic theory still dominates the economic analysis, prediction, and even public economic policy, encouraged, unfortunately, by the career criteria in science and education fields. In such a context, the objectives of the paper are: (1) to systematize the findings related to the unrealism and theoretical and methodological mistakes of the economic neoclassic model; (2) to argue about the desirability, reliability, realism, and efficaciousness of an evolutionary model of the economy (and of Economics); (3) to draw the basic lines which an evolutionary economic theory could be edified on, starting from both the statu quo in the matter and the logical examination of the question. The approach of research is a mix between logical and historical (but not empirical) views regarding the evolutionary economic model/theory. The main results are: (a) arguing on the possibility of crystalizing the basic concepts of an evolutionary economic model; (b) making proposals for the evolutionary economic mechanism (in its abstract understanding – as cybernetic system of order 3); (c) warning on the risks of a tale quale taking over of the evolutionary concepts from Biology; (d) identifying the principles to be followed in building up of an evolutionary economic theory.

Reintroducing Time, Money and Constraints: Viability to Bridge the Economic and Monetary Theories

Why use a viabilistic approach to model economy? Because it is urgent to re-assess the modeling of the business cycle that integrates dynamic money creation and that has at its core the notion of constraints. The purpose of this paper is thus to propose an evolutionary economic model using a mathematical framework derived from set-valued analysis, differential inclusions and viability theory. As this approach is dynamical, the model will not use two concepts on which neo-classical economics are built i.e., (1) the existence of static repeated equilibria, (2) the optimization by an economic agent of a utility function. Furthermore, we will not use any self-organization process or “invisible hand”, as in our viabilist framework the economic viability will be maintained by explicit choices of the economic agents and of the lender of last resort over the budgetary and monetary rules to apply. Indeed, even simple constraints on the second-derivative of the means of payments already induce four-phased business cycles. Coupling these constraints over the creation of means of payment with economic evolutions of prices and commodities through a budgetary constraint allows for a single formalism, tackling jointly the question of the viability of economic and monetary evolutions.

Uncertainty in boundedly rational household adaptation to environmental shocks.

Despite the growing calls to integrate realistic human behavior in sustainability science models, the representative rational agent prevails. This is especially problematic for climate change adaptation that relies on actions at various scales: from governments to individuals. Empirical evidence on individual adaptation to climate-induced hazards reveals diverse behavioral and social factors affecting economic considerations. Yet, implications of replacing the rational optimizer by realistic human behavior in nature-society systems models are poorly understood. Using an innovative evolutionary economic agent-based model we explore different framings regarding household adaptation behavior to floods, leveraging on behavioral data from a household survey in Miami, USA. We find that a representative rational agent significantly overestimates household adaptation diffusion and underestimates damages compared to boundedly rational behavior revealed from our survey. This "adaptation deficit" exhibited by a population of empirically informed agents is explained primarily by diverse "soft" adaptation constraints-awareness, social influences-rather than heterogeneity in financial constraints. Besides initial inequality disproportionally impacting low/medium adaptive capacity households post-flood, our findings suggest that even under a nearly complete adaptation diffusion, adaptation benefits are uneven, with late or less-efficient actions locking households to a path of higher damages, further exacerbating inequalities. Our exploratory modeling reveals that behavioral assumptions shape the uncertainty of physical factors, like exposure and objective effectiveness of flood-proofing measures, traditionally considered crucial in risk assessments. This unique combination of methods facilitates the assessment of cumulative and distributional effects of boundedly rational behavior essential for designing tailored climate adaptation policies, and for equitable sustainability transitions in general.

The Impact of Automation on Employment: Just the Usual Structural Change?

We study the projected impact of automation on employment in the forthcoming decade, both at the macro-level and in actual (types of) sectors. Hereto, we unite an evolutionary economic model of multisectoral structural change with labor economic theory. We thus get a comprehensive framework of how displacement of labor in sectors of application is compensated by intra- and intersectoral countervailing effects and notably mopped up by newly created, labor-intensive sectors. We use several reputable datasets with expert projections on employment in occupations affected by automation (and notably by the introduction of robotics and AI) to pinpoint which and how sectors and occupations face employment shifts. This reveals how potential job loss due to automation in “applying” sectors is counterbalanced by job creation in “making” sectors as well in complementary and quaternary, spillover sectors. Finally, we study several macro-level scenarios on employment and find that mankind is facing “the usual structural change” rather than the “end of work”. We provide recommendations on policy instruments that enhance the dynamic efficiency of structural change.

Evolution-Based Approaches in Economics and Evolutionary Loss of Information

:Evolutionary economics provides a self-organizing, stabilizing mechanism without relying on mechanic equilibria. However, there are substantial differences between the genetic evolutionary biology and the evolution of institutions, firms, routines, or strategies in economics. Most importantly, there is no genetic codification and no sexual reproduction in economic evolution, and the involved agents can interfere consciously and purposefully. This entails a general lack of fixation and a quick loss of information through a Muller’s ratchet-like mechanism. The present contribution discusses the analogy of evolution in biology and economics, and considers potential problems resulting in evolutionary models in economics.

Evolutionary model of stock markets

The paper presents an evolutionary economic model for the price evolution of stocks. Treating a stock market as a self-organized system governed by a fast purchase process and slow variations of demand and supply the model suggests that the short term price distribution has the form a logistic (Laplace) distribution. The long term return can be described by Laplace–Gaussian mixture distributions. The long term mean price evolution is governed by a Walrus equation, which can be transformed into a replicator equation. This allows quantifying the evolutionary price competition between stocks. The theory suggests that stock prices scaled by the price over all stocks can be used to investigate long-term trends in a Fisher–Pry plot. The price competition that follows from the model is illustrated by examining the empirical long-term price trends of two stocks.

A coevolutionary framework for analysing a transition to a sustainable low carbon economy

This paper proposes a coevolutionary framework for analysing a transition to a sustainable low-carbon economy, based on the coevolution of ecosystems, technologies, institutions, business strategies and user practices, within a multi-level micro–meso–macro perspective. This builds on and develops previous coevolutionary analyses of long-term technological and industrial change, and recent renewed interest within ecological economics on coevolutionary approaches. Previous work has analysed how the coevolution of technologies and institutions has led to the lock-in of current high-carbon energy systems; and how the coevolution of physical and social technologies and business strategies has brought significant material and welfare benefits to the minority of the world's population living in industrialised countries. The coevolutionary framework proposed here may be used to undertake: (1) detailed empirical analyses at a micro–meso level of the challenges relating to the innovation and adoption of particularly low-carbon technologies; (2) as a framework for analysing the multi-level interaction of social and technological elements within potential transition pathways to a low carbon energy system; (3) to assess the implications for economic growth and prosperity of a transition to a low carbon economy; and (4) to assist in the development of more formal, multi-level evolutionary economic models.

Regional innovation and competitiveness in a dynamic representation

This paper combines the various strands of literature on knowledge and innovation as drivers of regional growth in an evolutionary model, representing the internal dynamics of a regional system focusing on Arthurian dynamic increasing returns to scale. The model shows how different evolutionary patterns can arise starting from identical local systems, and that the effects of policies are different depending on the state of the system. Simulation evolutionary economic geography models also allow to represent the complexity of spatial economic development without radically simplifying it and to formalize concepts which are otherwise only expressed—by economic geographers—as logical arguments.

Evolutionary models in economics: a survey of methods and building blocks

This paper assesses methods and components of formal evolutionary-economic modelling. Methods are broadly classified into evolutionary game theory and selection dynamics, evolutionary computation and multi-agent models, each with relevant subcategories. The components or building blocks are organized into diversity, innovation, selection, bounded rationality, diffusion, path dependency and lock-in, coevolution, multilevel and group selection, and mechanisms of growth. The number of alternatives that has been proposed for each category is vast, making it difficult to comprehend the variety of assumptions and formalizations underlying existing evolutionary-economic models. Our survey aims to clarify for each model component the choice range, formal expressions, associated assumptions, and possible techniques for formalization. Our study is unique in that it provides more information about the formal details of specific model components and is considerably more inclusive than earlier reviews.

Models in evolutionary economics and environmental policy: Towards an evolutionary environmental economics

In this paper we review evolutionary economic modelling in relation to environmental policy. We discuss three areas in which evolutionary economic models have a particularly high added value for environmental policy-making: the double externality problem, technological transitions and consumer demand. We explore the possibilities to apply evolutionary economic models in environmental policy assessment, including the opportunities for making policy-making endogenous to environmental innovation. We end with a critical discussion of the challenges that remain.

Eco-innovations and industrial organisation: a review of complementary explanations of unsustainable economic paths

Technological "lock-in" is a form of macrolevel "network" externality and thus a form of market failure. What it can imply is that firms in an industry maintain (and replace) capital stock which is technologically sub-optimal because of "quasi-irreversibilities": it is only privately optimal for one firm to shift its technological base if other firms in the industry follow suit. This form of externality is radically different to the conventional microlevel pollution externality. This research explores the possibility that production is "locked into" practices that are unsustainable and polluting due to macrolevel quasi-irreversibilities and due to the micro (firm) process of "searching" for social and environmental innovations. As such, the research develops an evolutionary economic conceptual model of firm behaviour and considers the implications of this model for the long-term competitiveness and sustainability of industry.

Developments of the Price equation and natural selection under uncertainty.

Many approaches to the study of adaptation, following Darwin, centre on the number of offspring of individuals. Population genetics theory makes clear that predicting gene frequency changes requires more detailed knowledge, for example of linkage and linkage disequilibrium and mating systems. Because gene frequency changes underlie adaptation, this can lead to a suspicion that approaches ignoring these sophistications are approximate or tentative or wrong. Stochastic environments and sexual selection are two topics in which there are widespread views that focusing on number of offspring of individuals is not enough, and that proper treatments require the introduction of further details, namely variability in offspring number and linkage disequilibrium, respectively. However, the bulk of empirical research on adaptation and a great deal of theoretical work continue to employ these approaches. Here, a new theoretical development arising from the Price equation provides a formal justification in very general circumstances for focusing on the arithmetic average of the relative number of offspring of individuals.

'History-friendly' models of industry evolution: the computer industry

The model presented in this paper is the first of a new generation of evolutionary economic models: 'history-friendly' models. History-friendly models are formal models that aim to capture, in stylized form, qualitative and 'appreciative' theories about the mechanisms and factors affecting industry evolution, technological advance and institutional change put forth by empirical scholars of industrial economics, technological change, business organization and strategy, and other social scientists. In this paper we have analyzed the long-term evolution of the computer industry. In particular we have examined the emergence of a dominant firm in mainframes, the introduction of a major innovation (microprocessor), the opening up of a new market segment (personal computers), ad the competition there between newcomers and diversified old established firms. We have taken a body of verbal appreciative theorizing, developed a formal representation of that theory, and found that the formal version of that theory is consistent and capable of generating the stylized facts the appreciative theory purports to explain. Going through this analytic exercise has significantly sharpened our theoretical understanding of the key factors behind salient aspects of the evolution of the computer industry. Copyright 1999 by Oxford University Press.

Rational actors, tit-for-tat types, and the evolution of cooperation

Evolutionary models in economics have often been criticized for failing to allow for rational, maximizing behavior. The present paper represents a step toward correcting this deficiency, by introducing rational actors into an evolutionary model of the finitely repeated Prisoners' Dilemma. At the same time, the model endogenizes the uncertainty postulated in the classic model of Kreps et al. (1982), thus explaining cooperation by rational actors in the finitely repeated Prisoners' Dilemma. A testable implication of the model is that the level of voluntary cooperation in a society will be relatively high where geographical mobility is relatively low.

Research in Law and Economics, Vol. IV, Evolutionary Models in Economics and Law

Research in Law and Economics, Vol. IV, Evolutionary Models in Economics and Law