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The Evolutionary Economics Group

Papers on Economics and Evolution

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Papers 2013 [back to top] Top

#1309 (PDF)
U. Witt
The Future of Evolutionary Economics: Why Modalities Matter
The label "evolutionary" is currently used in economics to describe a variety of theories and topics. Far from inspiring the paradigmatic shift envisioned by some of the early proponents of evolutionary economics, the patchwork of theories and topics in this field demonstrates the need of an overarching interpretative frame. In other disciplines, the adoption of the Darwinian theory of evolution extended by hypotheses on cultural evolution has led to such a paradigm shift. This paper explores what can be accomplished by adopting that theory as an interpretative frame also for economics. Attention is directed in particular to the modalities of causal explanations that are germane to such a frame. The relevance of these modalities to the various thematic and theoretical specializations carrying the label "evolutionary" in economics is established to demonstrate the suitability as a common frame. Moreover, these modalities suggest a criterion on the basis of which evolutionary research can be distinguished from non-evolutionary research in economics. The case of institutional economics is used to outline some implications in an exemplary fashion.
#1308 (PDF)
K. Dopfer
Evolutionary Economics
The paper provides an overview of major recent contributions in evolutionary economics. It starts of demonstrating that the pioneers of this approach such as Veblen, Schumpeter, Marshall and Hayek saw the economy as continuously changing and that this kind of "realism of perception" guides essentially also contemporary evolutionary economics. The economy is viewed as an evolving system of structured knowledge governing economic operations. Theoretically, a micro-meso-macro architecture is proposed, whereby meso (lacking in traditional economics) represents the theoretical key unit for analyzing the economy's structure and evolutionary change. Analytically, knowledge is specified on the basis of a unified generic rule approach and empirically-based rule taxonomy. A rule-based partial market theory highlighting the dynamic of demand and supply as a process of co-evolution of consumer rules, producer rules and product rules is serving as exemplar. As for paradigmatic-ontological foundations, a set of "empirical axioms" for evolutionary economic analysis is introduced at the outset. The final section on evolutionary economic policy indicates the practical relevance of the approach.
#1307 (PDF)
A. Coad, M. Binder
Causal linkages between work and life satisfaction and their determinants in a structural VAR approach
Work and life satisfaction depend on a number of pecuniary and non-pecuniary factors at the workplace and determine these in turn. We analyze these causal linkages using a structural vector autoregression approach for a German sample of the working populace from 1984-2008.
#1306 (PDF)
K. Dopfer
Economics with a Phylogenetic Signature
Ever since Darwin biologists have emphasised the commonalities between non-human and human species, while anthropologists have stressed the big difference between them. This paper not only endorses commonalities between species but takes them as a means to give extant phylogenetic differences a clear profile. It introduces the notion of universal culture, applicable to all phylogenies of culture-making species. Culture is defined as a system of socially generated and transmitted rules that allow their carrier cultural operations, economic operations taking centre stage in the study. Based on explorative induction – employing macaques washing sweet potatoes and 60,000-year-old ornamented ostrich eggs as exemplars – commonalities and differences between the cultures of non-human and human primates are highlighted. The hypothesis is advanced that non-human primates are capable of endosomatic culture, meaning that the origination of their culture is conditional upon a sensory nexus between the rule maker and the external referent; for instance, a tool rule is originated by inferring a tool function from the shape of a pre-existing stone. In contrast, humans can evolve exosomatic culture, as they possess the unique ability of imagination, which enables them to originate rules independent of any sensory nexus. Genetically equipped with the ability to use abstract language, humans can transmit rules both horizontally and vertically, not just as object-dependent templates but also as symbols. The possession of shared imagination is seen as representing the major proximate cause of the evolution of human culture, facilitating its distinctive economic operations.
#1305 (PDF)
B. Volland
Conscientious consumers? Preferences, personality and expenditure in the UK
While the importance of personality for understanding differences in labor market outcomes has come to be increasingly appreciated by economic scholars, little research has so far focused on the question whether these measures also explain some of the individual heterogeneity in demand behavior. Using data from the British Household Panel Survey, this study provides evidence for the relationship between the Big Five personality traits and expenditures for food away from home and other leisure activities. Additionally, we assess the relationship between dimensions of personality and individual preferences in predicting expenditure on these categories. Results indicate that aspects of personality predict a non-negligible part of expenditure behavior, and that these effects are independent of the individual’s preference stock. Our results provide empirical support for approaches that include personality as a constraint into economic models of human behavior.
#1304 (PDF)
M. Binder, L. K. Lades
Autonomy-enhancing paternalism
Behavioral economics has shown that individuals sometimes make decisions that are not in their best interest. This insight has prompted calls for behaviorally-informed policy interventions popu-larized under the notion of "libertarian paternalism". This type of soft paternalism aims at helping individuals without reducing their freedom of choice. We highlight three problems of libertarian paternalism: the difficulty to detect what is in the best interest of an individual, the focus on freedom of choice at the expense of a focus on autonomy, and the neglect of the dynamic effects of libertarian paternalistic policy interventions. We present a form of soft paternalism called "autonomy-enhancing paternalism" that seeks to constructively remedy these problems. Autonomy-enhancing paternalism suggests using insights from subjective well-being research in order to determine what makes individuals better off. It imposes an additional con-straint on the set of permissible interventions highlighting the importance of autonomy in the sense of the capability to make critically reflected, i.e. autonomous, decisions. Finally, it acknowl-edges that behavioral interventions can change the strength of individual decision making anomalies over time as well as influence individual preference learning. We illustrate the differences between libertarian paternalism and autonomy-enhancing paternalism in a simple formal model in the context of optimal sin nudges.
#1303 (PDF)
C. M. Baum
Mass-Produced Food: the Rise and Fall of the Promise of Health and Safety
The greater awareness of the negative environmental and health-related externalities of the large-scale food industry is directly responsible for the diminished confidence of the quality of its products. Using the multi-level perspective on socio-technical transitions (Geels, 2004; 2010), I argue that the initial impetus for the emergence of mass production was the presence of threats to health and safety in the broader societal context. Rather than simply serving economic considerations, the scale and scientific expertise of mass production functioned as a credible signal due to its relationship to these threats. The declining health and safety of the food industry represents, however, a consequence of the changing relationship of scale and quality due to the emergence of new threats to health and safety. Scale as a signal of credibility is no longer sufficient to guarantee these qualities, however. Absent the incentives to undertake costly investments in quality production, the criteria of productivity and efficiency become duly emphasized to the detriment of health and safety. Hence, the continued emphasis on scale now represents a limitation to improving health and safety. Instead, further quality innovation demands the development of a costly signal appropriate to the extant social context.
#1302 (PDF)
M. Binder
Subjective Well-being Capabilities: Bridging the Gap between the Capability Approach and Subjective Well-Being Research
As a result of the disenchantment with traditional income-based measures of welfare, alternative welfare measures have gained increasing attention in recent years. Two of the most prominent measures of well-being come from subjective well-being research and the (objective) capability approach. Despite their promising features, both approaches have a number of weaknesses when considered on their own. This paper sets out to examine to what extent a fusion between both approaches can overcome the weaknesses of both individual approaches. It uses features of the capability framework to enrich what is basically a subjective well-being perspective. Key drawbacks of normative subjective well-being views can be overcome by focussing welfare assessments on "Subjective Well-being Capabilities" (SWC), i.e. focussing on the substantive opportunities of individuals to pursue and achieve happiness.
#1301 (PDF)
J. Foster
Energy, Knowledge and Economic Growth
It is argued that the explosive growth experienced in much of the World since the middle of the 19th Century is due to the exploitation and use of fossil fuels which, in turn, was made possible by capital good innovations that enabled this source of energy to be used effectively. Economic growth, it is argued, has been due to an autocatalytic co-evolution of energy use and the application of new knowledge relating to energy use. A simple 'evolutionary macroeconomic' model of economic growth is developed and tested using almost two centuries of British data. The empirical findings strongly support the hypothesis that growth has been due to the presence of a 'super-radical innovation diffusion process.' Also, the evidence suggests that large and sustained movements in energy prices have had a very significant long term role to play. The paper concludes with an assessment of the implications of the findings for the future prospects of economic growth in Britain and the possible lessons that can be learned about the future of the global economy.

Papers 2012 [back to top] Top

#1220 (PDF)
U. Witt
Cultural Evolution, Economic Growth and Human Welfare - A Drift Process?
To assess whether and when the equation "economic growth = better life" holds, it is necessary to understand what human motivations drive the economic growth process. The preference subjectivism of canonical welfare economics is of little help here as it treats the motivations underlying individual behavior as an unexplained "black box". The present paper therefore reviews several motivational hypotheses suggested by biology, behavioral science, and cognitive psychology. They point to a strong influence of cognitive and noncognitive learning processes on the underlying motivations or, in economic terminology, the emergence and change of individual preferences. As a consequence, subjective welfare assessments tend to follow a drift process once a certain level of prosperity has been accomplished by economic growth. The normative relevance of the resulting preference relativism is argued to be particularly momentous, if the value basis of normative judgments is extended beyond the welfare criterion to justice and fairness considerations.
#1219 (PDF)
B. Volland
The History of an Inferior Good: Beer Consumption in Germany
The question whether alcohol in general, and different types of alcoholic beverages in particular (e.g., beer) are normal or inferior goods is a heavily disputed issue within economics and health research. Based on recently developed theories of preference adjustment this paper argues that the answer to this question may not be independent of the level of income itself. It therefore applies a gradual switching regression approach to aggregate beer consumption data in Germany from 1957 to 2007. This method allows elasticities to change over time, without prior specifications of the time and speed of adjustments. Results suggest that an important behavioral change is present in the data, as elasticities of beer demand shifted considerably between 1965 and 2004. In particular, they demonstrate that over this period beer shifted from being a normal to being an inferior good.
#1218 (PDF)
A. Chai, W. Kaus
Signalling to whom? Conspicuous spending and the local density of the social group income distribution
We empirically evaluate two competing explanations about how the dispersion of income within social groups affects household spending on visible goods. Using South African household expenditure data, we find evidence that precisely the reverse of the effect predicted by Charles et al. (2009) takes place in that rich households tend to reduce, rather than increase, spending on visible goods as the dispersion of social group income increases. Our results instead support rank-based models of status competition since the number of within-group peers who possess a similar income level is found to be positively correlated with household spending on visible goods. Moreover, we find that the effect of this 'local' density tends to be stronger in the tail regions of the distribution and performs better than other proxies for the overall income distribution used in recent studies. How the range of visible goods used to signal wealth expands as household income grows is also explored.
#1217 (PDF)
U. Witt, G. Schwesinger
Phylogenetic Footprints in Organizational Behavior
An evolutionary tool kit is applied in this paper to explain how innate social behavior traits evolved in early human groups. These traits were adapted to the particular production requirements of the group in human phylogeny. They shaped the group members' attitudes towards contributing to the group's goals and towards other group members. We argue that these attitudes are still present in modern humans and leave their "phylogenetic footprints" also in present-day organizational life. We discuss the implications of this hypothesis for problems arising in firm organizations in relation to the coordination and motivation of organization members.
L. K. Lades
The impact of differential satiation dynamics on changing consumer behavior, wellbeing, and innovative activity
This paper presents a formal model in which differential satiation dynamics of various consumer needs translate into long-run changes of consumer behavior when income rises. In the model individuals allocate their income to the consumption categories proportional to need deprivation states corresponding to the consumption categories, a decision making process called matching. The paper compares the Engel curves obtained from matching with the Engel curves obtained from traditional constrained maximization. The latter allocation is used as a normative benchmark of the behavior that leads to the highest utility. While superficially both ways to allocate income generate similar results, matching allows to explain some empirical regularities that maximization cannot account for. For example, only by using matching one can reconstruct that income elasticities for food tend to decrease with rising income. Moreover, the comparison of both ways to allocate income shows that the deviations from rational behavior are greater for relatively poor individuals than for richer individuals so that the inequality in terms of welfare can be stronger than the inequality in terms of income. Innovations influencing the satiation patterns can strengthen this effect.

published as: Explaining shapes of Engel curves: the impact of differential satiation dynamics on consumer behavior" in: Journal of Evolutionary Economics, 2013, doi:10.1007/s00191-013-0324-6
#1215 (PDF)
N. Beck
Social Darwinism
"In the distant future I see open fields for far more important researches. . . . Light will be thrown on the origin of man and his history." This statement, which appears in the concluding chapter to the Origin of Species, was Darwin's only mention of human evolution in the entire book. Aware of the difficulties his biological propositions would encounter, Darwin thought it wise to leave the delicate question of human evolution aside for the time being. He was nonetheless fully conscious that his theory would revolutionize the way we think about ourselves and our cultures. Enter social Darwinism. The term has been used mainly to decry doctrines that justify some form of individual, social, or racial superiority through evolutionary principles. Yet many of the positions typically attached to social Darwinism do not correspond to this stereotypical description. Even among the main proponents of evolutionary theory in the nineteenth century - Darwin, Wallace, Huxley, and Spencer - there were important disagreements concerning the process of evolution in humans and its results. This article offers an examination of their claims, as well as some related and antagonistic viewpoints, in two main areas: on the one hand, the debate over wealth distribution and landownership, and on the other, the question of the relationship between evolution and ethics.
#1214 (PDF)
C. Schubert, A. Chai
Sustainable Consumption and Consumer Sovereignty
There is a growing consensus in Ecological Economics that consumer preferences are neither fixed nor given, but rather endogenously determined by socio-economic and institutional factors. Hence, policy may promote "green" preferences directly. Yet any intervention in processes of preference formation seems to conflict with widely held liberal intuitions, imperfectly represented by the principle of Consumer Sovereignty (CS). We argue that a suitably refined, dynamic version of CS may not stand in the way of certain preference-shaping policies. By exploring different modes of consumer learning that imply varying degrees of behavioral lock-in, we show that there is a scope for policies that influence preference formation without violating CS. This extends the range of normatively acceptable sustainability policies.
#1213 (PDF)
S. Metcalfe
J.A. Schumpeter and the Theory of Economic Evolution (One Hundred Years beyond the Theory of Economic Development)
The centennial of the publication of Schumpeter's Theory of Economic Development is an occasion to look back in appraisal and an opportunity to look forward in anticipation to consider anew the challenges that remain unfulfilled for Schumpeterians. Along with Marx and Marshall, Schumpeter's great achievement was to formulate an evolutionary, open system perspective on modern capitalism, to explain why it could never be at rest and to link its emergent properties to the capacity to change from within. In terms of appraisal, I shall focus on three aspects of Schumpeter's scheme: the link between knowledge, enterprise and the meaning to be attributed to a knowledge economy, the nature of the competitive process in the presence of innovation, and the transient, out of equilibrium nature of all economic arrangements. In looking forward, I shall consider what is missing from evolutionary economic dynamics, pointing to the role of factor markets in the competitive process, the significance of differences in firm's investment strategies and the fine grained nature of competition in markets where differences in the qualities of goods and services matter, and, lastly, on the evolutionary dimensions of international competition. Two lessons are particularly pertinent to advancing the Schumpeterian enterprise. First, that the familiar one-dimensional models of economic evolution are useful but incomplete. Secondly, that, while much evolutionary thinking has naturally focused on the connection between the micro and the meso, we need also to consider the connection between the meso and the macro and in so doing connect to rich literatures in the field of economic growth and development.
#1212 (PDF)
J. M. Gowdy, D. E. Dollimore, D. S. Wilson, U. Witt
Economic Cosmology and the Evolutionary Challenge
The intellectual histories of economics and evolutionary biology are closely intertwined because both subjects deal with living, complex, evolving systems. Because the subject matter is similar, contemporary evolutionary thought has much to offer to economics. In recent decades theoretical biology has progressed faster than economics in understanding phenomena like hierarchical processes, cooperative behavior, and selection processes in evolutionary change. This paper discusses three very old "cosmologies" in Western thought, how these play out in economic theory, and how evolutionary biology can help evaluate their validity and policy relevance. These cosmologies, as manifested in economic theory are, (1) rational economic man, (2) the invisible hand of the market, and (3) the existence of a general competitive equilibrium. It is argued below that current breakthroughs in evolutionary biology and neuroscience can help economics go beyond these simple cosmologies.
#1211 (PDF)
S. B. Bruns, C. Gross
Can Declining Energy Intensity Mitigate Climate Change? Decomposition and Meta-Regression Results
Drawing on the Kaya identity, we assess the role of the main driver of the decline in carbon intensity, namely the (economic) energy intensity. Using meta-signi…ficance testing for a sample of 44 studies, dealing with the causality between energy and GDP, we …find that both variables are strongly coupled. Hence, after having exhausted energy savings from nonrecurring structural changes, the economic energy intensity may soon converge than being arbitrarily reducible. We suggest, therefore, not to rely on further reductions of economic energy intensity but rather to invest in the reduction of the carbon intensity of energy to mitigate climate change.
#1210 (PDF)
B. Volland
The effects of income inequality on BMI and obesity: Evidence from the BRFSS
Despite increasing knowledge on its adverse consequences, obesity prevalence across the U.S. has been rising markedly over the past three decades. The private and economic costs of this development are substantial, and it has been estimated that its direct and indirect costs now sum to over 1% of annual GDP. While much progress has been achieved in recent years in understanding the economic changes that contribute to this development, a little researched factor that has also been argued to exacerbate the prevalence of obesity is the distribution of income. Augmenting data from 12 consecutive waves of the Behavioral Risk Factor Surveillance System (BRFSS), with a recently published data set on state-level income inequality based on tax payments, the present paper analyzes whether changes in income inequality can be considered a determinant of variations in body mass and obesity across the U.S. It finds that they have a significant positive effect on BMI and obesity. While the effect is small, it is in the range of other state-level determinants, suggesting that some form of redistributive policy may help containing the spread of unfavorable weight outcomes.
#1209 (PDF)
C. Gross, U. Witt
The Energy Paradox of Sectoral Change and the Future Prospects of the Service Economy
Persistently rising energy prices have revived interest in the economic impact of changing energy costs. We explore the effects of these costs on sectoral change, particularly in relation to the rise and future prospects of the "service economy". Following Baumol’s cost disease hypothesis, (unexplained) productivity differentials between the industrial and service sectors are often utilized to explain the recent dominance of the service sector. We hypothesize that the productivity differential results from the respective technological opportunities for substituting energy for labor in each of the sectors. To test our hypothesis, we analyze the U.S. economy for the period from 1970 to 2005. By means of the Autoregressive Distributed Lags (ARDL) bounds test, we examine whether a cointegrating relationship exists, in a given sector, between labor productivity and variables from our model representing the technological substitution conditions. Our findings support this hypothesis. Therefore, we can conclude that productivity differentials between the sectors may vanish if, as a result of rising energy costs, the substitution incentives are likely to fade out. Such a development might put the future of the service economy at risk.
#1208 (PDF)
C. Schubert
Opportunity and Preference Learning
Robert Sugden has recently elaborated upon the case for a normative standard of freedom as "opportunity" that is supposed to cope with the problem of how to realign normative economics - with its traditional rational choice orientation - with behavioral economics. His standard, though, presupposes that people respond to uncertainty about their own future preferences by dismissing any kind of self-commitment. We argue that the approach lacks psychological substance: Sugden's normative benchmark - the "responsible person" - is a purely artificial construct that can hardly serve as a convincing role model in a contractarian setting. An alternative concept is introduced, and some policy implications are briefly discussed.
M. Binder, A. Freytag
Volunteering, Happiness and Public Policy
Is the activity of volunteering something that benefits the volunteer as well as the recipient of the volunteer’s activities? We analyze this relationship and apply matching estimators to the large-scale British Household Panel Survey (BHPS) data set to estimate the causal impact of volunteering on happiness. We take into account personality traits that could jointly determine volunteering behaviour and happiness. We find that the causal impact of volunteering on happiness is positive and increasing over time if volunteering is sustained. In a quantile analysis, we find that this effect seems to be driven by reducing the unhappiness of the less happy quantiles of the well-being distribution. We test the robustness of our findings and discuss their relevance for public policy.

published in: Journal of Economic Psychology 34(1), 2013, 97-119, doi: 10.1016/j.joep.2012.11.008
#1206 (PDF)
T. Ciarli
Structural interactions and long run growth: An application of Experimental Design to Agent Based Models
We propose an agent-based computational model defining the following dimensions of structural change – organisation of production, technology of production, and product on the supply side, and income distribution and consumption patterns on the demand side – at the microeconomic level. We define ten different parameters to account for these five dimensions of structural change. Building on existing results we use a full factorial experimental design (DOE) to analyse the size and significance of the effect these parameters on output growth. We identify the aspects of structural change that have the strongest impact. We study the direct and indirect effects of the factors of structural change, and focus on the role of the interactions among the different factors and different aspects of structural change. We find that some aspects of structural change – income distribution, changes to production technology and the emergence of new sectors, – play a major role on output growth, while others –consumption shares, preferences, and the quality of goods, – play a rather minor role. Second, these major factors can radically modify the growth of an economy even when all other aspects experience no structural change. Third, different aspects of structural change strongly interact: the effect of a factor that influences a particular aspect of structural change varies radically for different degrees of structural change in other aspects. These results on the different aspects of structural change provide a number of insights on why regions starting from a similar level of output and with initial small differences grow so differently through time.
#1205 (PDF)
B. Volland
The vertical transmission of time use choices
The present paper analyzes intergenerational correlations in leisure time use between parents and their adult children in order to gain an understanding of the importance of genetics and early childhood learning mechanisms in preference formation. Data from the British Household Panel Survey (BHPS) is used to regress time use choices of children on the behavior of their parents after the former have left to form their own household.
A principal component analysis on eight time use items reveals two identifiable components, associated with personal leisure time use outside the home, and voluntary work. Estimations find substantial and significant correlations for both components, but suggest that the variance in filial behavior explained by the variance in parental behavior is limited, ranging from 17% to 32% for personal leisure time use, and from 2% to 7% for voluntary work. Moreover we provide evidence that direct transmission of parental preferences to their children accounts for roughly 20% of the observable similarity between the two generations. These results are robust to a wide array of robustness checks, including changes in estimation technique, model specification, and data restrictions, and suggest that these correlations can be ascribed to preference transmission from parental to filial generation rather than to coordination between generations. Aside from adding to the growing economic literature on preference transmission models, it also provides empirical support for the strong impact of non-parental sources of preferences formation, voiced particularly in models of dual inheritance.
#1204 (PDF)
W. M. Wadman
The Disappearance of Hard Constraints in Neoclassical Economics
This paper introduces variable quality into the general treatment of neoclassical economics. It also introduces subbudget decision making at all levels. The consequences of these introductions are enormous for traditional theory. Most importantly, is the realization that within the market model there exists the prospect that constraints in capitalism are not hard, nor exclusively determined by market prices. In addition to the above, this paper argues for expansion of demand theory, and for expansion of the theory of general equilibrium.
 The paper argues against the existence of a hard budget constraint, both for households and for firms; in fact, it argues that the constraint is influenced by subbudget decision making and by the selection of levels of quality, and as such, the constraint may become stochastic, not deterministic. It introduces the proposition that Marginal Rates of Substitution are not equal across consumers; that Marginal Rates of Transformation are not equal across firms; that the condition MRS=MRT is not attainable; that the condition, is not the long-run equilibrium for firms; and it presents arguments against lump-sum taxation, specifically, that the theoretical results of a lump-sum tax are unattainable. The paper introduces additional conditions for attainment of Pareto optimality in welfare economics.
 Ultimately, the paper argues that market forces are not impartial. This behavior surfaces in consumption space and in input space. This phenomenon arises from human decision making regarding the size of subbudgets and levels of quality, and the model explains how these issues influence the position and slope of constraints in consumption space and in input space.
 The avenue to attainment of these results lies within what has always been the Achilles tendon of neoclassical economics: the homogeneity assumption, or in this case, the assumption of constant quality and the absence of subbudgets in economic decision making. Insertion of these two elements into neoclassical economics demonstrates that the theoretical foundation of neoclassical capitalism (i.e., the Anglo-Saxon version of capitalism) is itself a special case. These results evolve slowly. Initially, the changes are subtle, but build and emerge forcefully as the paper unfolds. Toward the end of the paper the implication of these findings, in terms of evolution and the human condition, are discussed.
L. K. Lades
Impulsive Consumption and Reflexive Thought: Nudging Ethical Consumer Behavior
The paper deals with impulsive consumption and highlights the roles that cognitive and motivational aspects of reflexive thought (namely self-control and self-image motives, respectively) play in intertemporal decisions. While self-control inhibits individuals from consuming impulsively, self-image motives can induce impulsive consumption. Based on recent neuroscientific findings about 'wanting'–'liking' dissociations, the paper presents a potential motivational mechanism underlying such impulsive consumption decisions. Utilizing the knowledge of this mechanism and acknowledging both cognitive and motivational aspects of reflexive thought, the paper expands on three libertarian paternalistic means to foster an ethical way of impulsive consumption: strengthening willpower, reducing impulsive desires to consume, and guiding impulsive behavior in ethical directions by making salient certain self-images that favor ethical consumption.

published in: Journal of Economic Psychology, 2013, doi:10.1016/j.joep.2013.01.003
#1202 (PDF)
D. M. Haybron, V. Tiberius
Normative Foundations for Well-Being Policy
This paper examines the normative principles that should guide policies aimed at promoting happiness or, more broadly, well-being. After arguing that well-being policy is both legitimate and necessary, we lay out a case for "pragmatic subjectivism": given widely accepted principles of respect for persons, well-being policy may not assume any view of well-being, subjectivist or objectivist. Rather it should promote what its intended beneficiaries see as good for them: pleasure for hedonists, excellence for Aristotelians, etc. Specifically, well-being policy should promote citizens’ "personal welfare values": those values—and not mere preferences—that individuals' see as bearing on their well-being. We suggest a variety of means for determining what people value, but conclude that there is no canonical means of doing this: there will often be some indeterminacy about what people value. Finally, we consider how pragmatic subjectivism works in practice, arguing that headline measures of well-being should include subjective well-being—given that it is so widely and deeply valued—and perhaps other values as well.
C. Schubert
Pursuing Happiness
While research on subjective well-being abounds, comparatively little thought has been given to its practical policy implications. Two approaches to derive policy advice have emerged in the literature: One is organized in terms of the idea to maximize a hedonic social welfare function, the other focuses on the design of constitutional rules to facilitate the individuals' self-determined 'pursuit' of happiness. We suggest to substantiate what it means to 'pursue' happiness, in particular by drawing upon a psychologically informed account of preference learning. If extended in this direction, a notion of the pursuit of happiness has interesting practical policy implications.

published in: Kyklos 65 (2), 245-261

Papers 2011 [back to top] Top

#1124 (PDF)
D. M. Hausman
Why Satisfy Preferences?
Contemporary mainstream normative economists assess policies in terms of their capacities to satisfy preferences, though most would concede that other factors such as freedom, rights, and justice are also relevant. Why should policy be responsive to preferences? This essay argues that the best reason is that people's preferences are in some circumstances good evidence of what will benefit them. When those circumstances do not obtain and preferences are not good evidence of welfare, there is little reason to satisfy preferences.
#1123 (PDF)
A. Coad, C. Guenther
Age, diversification and survival in the German machine tool industry, 1953-2002
We focus on the relationship of age and diversification patterns of German machine tool manufacturers in the post war era. Based on trade journals we track the entire firm populations' product portfolio development throughout each firm's lifetime. We distinguish between 'minor diversification' and 'major diversification', where these two concepts refer to adding a new product variation within a familiar submarket, or expanding the product portfolio into new submarkets. Our analysis reveals four main insights. First, we observe that firms have lower diversification rates as they grow older, and that eventually diversification rates even turn negative for old firms on average. Second, we find that product portfolios of larger firms tend to be more diversified. Third, with respect to consecutive diversification activities, quantile autoregression plots show that firms experiencing diversification in one period are unlikely to repeat this behavior in the following year. Fourth, survival estimations reveal that diversification activities reduce the risk of exit controlling for various additional firm and industry specific fixed effects and business cycles. These results are interpreted using the Penrosean growth theory.
#1122 (PDF)
M. Wohlgemuth
Is there a Paradox of a Hayekian Paternalist?
Is Friedrich von Hayek in some specific, perhaps paradoxical, way a "classical liberal paternalist"? My answer will be an unsatisfying "yes and no" depending not only on my interpretation of Hayek, but also on the manifold interpretations one can give to the concepts of paternalism and classical liberalism (or, indeed: liberty). I start with an interpretation of Hayek’s account of "modernity". Here, I hint at a first potential paradox in the form of a "magic triangle" composed of (a) Hayek’s praise and explanation of the evolutionary emergence of the spontaneous order of the market and civil society, (b) Hayek’s fierce opposition to modernist thinking and the fatal conceit of rationalist constructivism and (c) Hayek’s gloomy visions of politics, legislation, or public choice. Next, I shortly distinguish various dimensions of paternalism and confront these with Hayek’s classical liberalism. In the following parts, I offer a brief account of behavioral "anomalies" of public choices that are analogous to, and even more harmful than, those used as legitimizations of "libertarian paternalism" in the private realm. I end up with a qualified claim that at least in the realm of potentially self-damaging collective choices, Hayek might be called a (classical liberal) "paternalist".
#1121 (PDF)
R. Sugden
The behavioural economist and the social planner: to whom should behavioural welfare economics be addressed?
This working paper is a lightly edited version of two chapters of a book that I am currently writing. This book will present and defend a form of normative economics that conserves the main insights of the liberal tradition of classical and neoclassical economics but does not depend on strong and implausible assumptions about individual rationality. In this paper, I ask who the addressee of normative economics should be. Conventional welfare economics, both neoclassical and behavioural, asks what is good for society from an impartial perspective – the ‘view from nowhere’. Explicitly or implicitly, its recommendations are addressed to an imagined benevolent despot. I argue for an alternative, contractarian approach, in which recommendations are addressed to individuals who are looking for ways of coordinating their behaviour to achieve mutual benefit. The contractarian approach disallows paternalistic recommendations, since these have no valid addressee.
U. Witt, M. Binder
Disentangling Motivational and Experiential Aspects of "Utility" - A Neuroeconomics Perspective
Although decision makers are often reported to have difficulties in making comparisons between multi-dimensional decision outcomes, economic theory assumes a uni-dimensional utility measure. This paper reviews evidence from behavioral and brain sciences to assess whether, and for what reasons, this assumption may be warranted. It is claimed that the decision makers' difficulties can be explained once the motivational aspects of utility ("wanting") are disentangled from the experiential ones ("liking") and the features of the different psychological processes involved are recognized.

published in: Journal of Economic Psychology 36(1), 2013, 27-40, doi: 10.1016/j.joep.2013.02.011
V. J. Vanberg
Darwinian Paradigm, Cultural Evolution and Human Purposes: On F.A. Hayek’s Evolutionary View of the Market
The claim that the Darwinian paradigm of blind-variation-and-selective-retention can be generalized from the biological to the socio-cultural realm has often been questioned because of the critical role played by human purposeful design in the process of cultural evolution. In light of the issue of how human purposes and evolutionary forces interact in socio-economic processes the paper examines F.A. Hayek's arguments on the "extended order of the market," in particular the tension that exists between his rational liberal and his agnostic evolutionary perspective.

published in: Journal of Evolutionary Economics, 2014, Vol. 24, 35-57
L. K. Lades
Towards an Incentive Salience Model of Intertemporal Choice
This theoretical paper presents an incentive salience model of intertemporal choice. The model is a variation of the quasi-hyperbolic discounting model. Based on the distinction between 'wanting' and 'liking', the paper presents one possible explanation of impulsive choices of smaller sooner rewards instead of larger later ones. These impulsive choices are induced by cues that trigger strong motivational 'wanting' to obtain smaller sooner rewards, but do not necessarily influence the degree to which the rewards are 'liked'. Cue-triggered 'wanting' can occur when an individual is in a specific need deprivation state, perceives a cue previously associated with an immediately obtainable reward, knows that the cued reward can reduce the current deprivation state, and lacks self-control. By integrating cue-triggered 'wanting' into an intertemporal choice model, the incentive salience model allows to predict which rewards elicit impulsive choices of smaller sooner rewards, thus offering an explanation for the domain effect.

published in: Journal of Economic Psychology, 33(4), 2012, 833 – 841
#1117 (PDF)
R. Joosten, B. Roorda
Attractive evolutionary equilibria
We present attractiveness, a re…nement criterion for evolutionary equilibria. Equilibria surviving this criterion are robust to small perturbations of the underlying payoff system or the dynamics at hand. Furthermore, certain attractive equilibria are equivalent to others for certain evolutionary dynamics. For instance, each attractive evolutionarily stable strategy is an attractive evolutionarily stable equilibrium for certain barycentric ray-projection dynamics, and vice versa.
#1116 (PDF)
U. Witt
Sustainability and the Problem of Consumption
Strong growth in disposable income has inflated consumption to unprecedented, but not sustainable levels. In this process consumer behavior has been changing. To explain the driving forces of this development, the paper introduces a theory of evolving consumer preferences that is molded in an evolutionary paradigm. The theory allows to better assess how individual welfare would be directly affected by policy measures designed to make consumption sustainable. Such policy measures are likely to also trigger indirect welfare losses by negative employment effects. The policy debate therefore needs to pay attention to both direct and indirect welfare effects. As a concrete proposal a redesign of consumption taxes is discussed that accounts for both concerns.
M. Binder, A. Coad
"I'm afraid I have bad news for you ..." Estimating the impact of different health impairments on subjective well-being
Bad health can severely disrupt a person's life. We apply matching estimators to examine how changes in subjective health status as well as different (objective) conditions of bad health affect subjective well-being. The strongest effect is in the category alcohol and drug abuse, followed by anxiety, depression and other mental illnesses, stroke, diabetes and cancer. We also take into account differences in "Big Five" personality traits. Adaptation to health impairments depends strongly on the health impairment examined. There is also a puzzling asymmetry: strong adverse reactions to deteriorations in health are observed alongside weak increases in well-being after health improvements.

published in: Social Science and Medicine, 2013, doi: 10.1016/j.socscimed.2013.03.025
#1114 (PDF)
J. S. Metcalfe, I. Steedman
Herr Schumpeter and the Classics
This paper is an exploration of the interface between two quite different strands of economic thought, the Schumpeterian, evolutionary theory of innovation and competition, and the classical, Sraffian theory of prices and distribution. Can the two methods usefully speak to each another? If they can, we would have in prospect a more general evolutionary economics (GEE) in which the classical emphasis on production of commodities by means of commodities would allow a far more sophisticated analysis of the place of technical change in economic development. To explore this question is decidedly not to propose a synthesis between classical and Schumpeterian economics; it is simply to enquire whether there are mutual lessons to be learned to enrich these very different approaches to the long period evolution of capitalist economies. Schumpeter's system is a system that is always out of equilibrium but it is not chaotic, rather it is a system strongly ordered by market forces and the ensuing relations between prices and profitability. Moreover, it is concerned with long-period market forces, that is to say the development of an economy in which innovation and investment to capitalise on innovation are dominant aspects of its working. The classical system is a long-period system of analysis too, and it has the great merit of working in terms of prices of production, those prices that enable the replication of the production process over time. Since much real world innovation is innovation in the produced means of production, within the network of inter-industry input-output relations, there are undoubtedly mutual lessons to be learnt.
#1113 (PDF)
A. Chai, A. Moneta
Back to Engel? Some evidence for the hierarchy of needs
Using data spanning over four decades (1960-2000), this paper employs Engel's needsbased approach to analyzing household expenditure patterns to find evidence for the existence of a stable hierarchy of expenditure patterns at low levels of household income. Second, we investigate how rising household income influences the manner in which total expenditure is distributed across Engel's expenditure categories. Our results suggest that i) total household expenditure is distributed across Engel's expenditure categories in an increasingly even manner as household income increases and ii) over time, there has been an acceleration in the rate at which household expenditure patterns become diversified as household income rises. Finally, we consider how the shape of Engel Curves may help shed light on the relationship between goods and the underlying needs they serve.
J. Foster, J. S. Metcalfe
Economic Emergence: an Evolutionary Economic Perspective
The standard neoclassical approach to economic theorizing excludes, by definition, economic emergence and the related phenomenon of entrepreneurship. We explore how the most economic of human behaviours, entrepreneurship, came to be largely excluded from mainstream economic theory. In contrast, we report that evolutionary economists have acknowledged the importance of understanding emergence and we explore the advances that have been made in this regard. We go on to argue that evolutionary economics can make further progress by taking a more 'naturalistic' approach to economic evolution. This requires that economic analysis be fully embedded in complex economic system theory and that associated understandings as to how humans react to states of uncertainty be explicitly dealt with. We argue that 'knowledge,' because of the existence of uncertainty is, to a large degree 'conjectural' and, thus, is closely linked to our emotional states. Our economic behaviour is also influenced by the reality that we, and the systems that we create, are dissipative structures. Thus, we introduce the notions of 'energy gradients' and 'knowledge gradients' as essential concepts in understanding economic emergence and resultant economic growth.

published in: Journal of Economic Behavior and Organization, Vol. 82, 420– 432.
#1111 (PDF)
C. Cordes, P. J. Richerson, G. Schwesinger
A Corporation's Culture as an Impetus for Spinoffs and a Driving Force of Industry Evolution
In infant industries, a great share of new market opportunities is depleted by firms that spinoff from incumbents. A model emphasizing the relation between incumbents' evolving corporate cultures and the generation of spinoffs explains this regularity in industry evolution. Organizations reach a critical size that entails the collapse of a cooperative culture and triggers the exodus of personnel founding own firms. Thereby, organizations with a cooperative culture active in a dynamic business environment provide ideal training grounds for potential founders. We relate our findings to empirical evidence on developmental patterns in industries, such as genealogies and performance of spinoffs.
#1110 (PDF)
U. Witt, J. S. Woersdorfer
Parting with "Blue Monday" – Preferences in Home Production and Consumer Responses to Innovations
How can economic theory explain the reasons why consumers adopt innovations? Using the example of innovations in washing machines two approaches are compared. The first focuses in the manner of household production theory on changes in constraints without specifying preferences, leading to the well-known time substitution hypothesis. The second approach develops specific hypotheses about consumer preferences and focuses on how technical change accounts for them. The two approaches are empirically evaluated with a data set representing the motives suggested in washer advertisements for purchasing new vintages of machines over the period 1888 to 1989 in the U.S.
#1109 (PDF)
R. Joosten
Social Dilemmas, Time Preferences and Technology Adoption in a Commons Problem
Agents interacting on a body of water choose between technologies to catch …fish. One is harmless to the resource, as it allows full recovery; the other yields high immediate catches, but low(er) future catches.… Strategic interaction in one 'objective' resource game may induce……………… several 'subjective' games in the class of social dilemmas. Which unique 'subjective' game is actually played depends crucially on how the agents discount their future payoffs. We examine equilibrium behavior and its consequences on sustainability of the common-pool resource system under exponential and hyperbolic discounting. A suffcient degree of patience on behalf of the agents may lead to equilibrium behavior averting exhaustion of the resource, though full restraint (both agents choosing the ecologically or environmentally sound technology) is not necessarily achieved. Furthermore, if the degree of patience between agents is suffciently dissimilar, the more patient is exploited by the less patient one in equilibrium. We demonstrate the generalizability of our approach developed throughout the paper. We provide recommendations to reduce the enormous complexity surrounding the general cases.
M. Binder, F. Ward
The Structure of Happiness: A Vector Autoregressive Approach
Subjective well-being is a complex phenomenon coevolving with events in important domains of life. Panel vector autoregressions are a suitable tool to analyze the underlying structure of changes in happiness and its coevolution with changes in income, health, worries, marital status and employment status. With this technique we can simultaneously analyze the impact of the aforementioned factors on each other for the German Socio-Economic Panel (SOEP) data set. We find that positive changes in the named life domains are followed by decreases in subjective well-being (except for health, which is followed by well-being increases). Moreover, positive changes in well-being are followed by positive changes in most life domains. These findings are robust to different model specifications and comparable to similar findings for the British populace. We also examine how the structure of happiness differs with respect to different "Big Five" personality traits. Personality plays an important role, especially with regard to high traits of Neuroticism and Extraversion.

published in: Metroeconomica, 2013, doi: 10.1111/meca.12011
#1107 (PDF)
I. Steedman
Advertising, Welfare Economics and Ethics
It is a fact of life that economic resources are used to alter other's preferences over commodities. Yet this is seldom taken into account in basic economic theory, explanatory or normative. It is shown here how a certain type of advertising is readily allowed for in the Edgeworth exchange box, in the small country foreign trade model, etc.. It is found, in welfare terms, that exchange/trade with advertising can involve some agents gaining at the expense of others; there need not be mutual gain. To deal with sales promotion, welfare economics needs to step outside the familiar Paretian framework to face difficult (and perhaps contentious) ethical issues, some of which are raised here.
#1106 (PDF)
U. Witt
Competition as an Ambiguous Discovery Procedure: A Reappraisal of Hayek's Epistemic Market Liberalism
Epistemic arguments play a significant role in Hayek's defense of market liberalism. His claim that market competition is a discovery procedure that serves the common good is a case in point. The hypothesis of the markets' efficient use of existing knowledge is supplemented by the idea that markets are also most effectively creating new knowledge. However, in his assessment Hayek neglects the role of new technological knowledge. He ignores that the discovery procedure induces not only price and cost competition but also competition by innovations. Thence he overlooks the ambiguity that follows from the unpredictability of the consequences of innovations. This fact is shown to challenge the epistemic foundations and the stringency of Hayek's version of market liberalism.
#1105 (PDF)
M. Binder, U. Witt
As Innovations Drive Economic Growth, Do they also Raise Well-Being?
While there is little doubt that innovations drive economic growth, their effects on well-being are less clear. One reason for this are ambivalent effects of innovations on well-being that result from pecuniary and technological externalities of innovations, argued to be inevitably. Another major reason lies in the fact that, as a result of innovations, preferences can change over time. Under such conditions, a time-consistent measuring rod for changes in well-being is hard to construct. Existing conceptions of well-being are shown not yet to solve the problem in a way that provides an unambiguous answer to the question in the title.
C. Gross
Explaining the (non-) causality between energy and economic growth in the U.S. - A multivariate sectoral analysis
The rapidly growing literature on the relationship between energy consumption and economic growth has not univocally identified the 'real' causal relationship yet. We argue that bivariate models, which analyze the causality at the level of the total economy, are not appropriate – especially in cases where both variables do not cover the same scope of economic activity. After discussing appropriate pairs of variables, we investigate Granger causality between energy consumption and GDP in the U.S. for the period from 1970 to 2007 for three sectors - industry, commercial sector, transport as well as for the total economy. The choice of additional variables is based on major findings from the Environmental Kuznets curve literature and its critical reflections. Using the recently developed ARDL bounds testing approach by Pesaran and Shin (1999) and Pesaran et al. (2001), we find evidence for long-run Granger causality for the commercial sector, in case energy is the dependent variable, as well as bi-directional long-run Granger causality for the transport sector. We conclude that controlling for trade as well as increasing energy productivity significantly improves the fit of several extensions of the bivariate model.

published in: Energy Economics, Online first, 16-JAN-2012 DOI:10.1016/j.eneco.2011.12.002
U. Witt
The Dynamics of Consumer Behavior and the Transition to Sustainable Consumption Patterns
Strong growth in disposable income has driven, and is still driving, consumption to unprecedented, but not sustainable levels. To explain the dynamic interplay of needs, need satisfaction, and innovation underlying that growth a behavioral theory of consumption is suggested and discussed with respect to its implications for making a transition to more sustainable patterns of consumer behavior.

published in: Environmental Innovation and Societal Transitions, Volume 1, Issue 1, June 2011, Pages 109-114. DOI:10.1016/j.eist.2011.03.001.
K. Dopfer
Evolution and Complexity in Economics Revisited
The paper discusses recent trends in the sister sciences of evolutionary economics and complexity economics. It suggests that a unifying approach that marries the two strands is needed when reconstructing economics as a science capable of tackling the two key questions of the discipline: complex economic structure and evolutionary economic change. Physics, biology and the cultural sciences are investigated in terms of their usefulness as both paradigmatic orientation and as toolbox. The micro–meso–macro architecture delineated puts meso centre stage, highlighting its significance as structure component and as process component alike, thereby allowing us to handle the key issues of structure and change.

published as: "Economics in a Cultural Key: Complexity and Evolution Revisited", in The Elgar Companion to Recent Economic Methodology, eds. John. B. Davis and D. Wade Hands, 319-340.
#1101 (PDF)
M. Barigozzi, A. Moneta
The Rank of a System of Engel Curves. How Many Common Factors?
By representing a system of budget shares as an approximate factor model we determine its rank, i.e. the number of common functional forms, or factors, spanning the space of Engel curves. Once the common factors are estimated via approximate principal components, we identify them by imposing statistical independence. Finally, by means of parametric and non-parametric regressions we estimate the factors as functions of total expenditure. Using data from the U.K. Consumption Expenditure Survey from 1968 to 2006, we find evidence of three common functional forms which correspond to decreasing, increasing and almost constant Engel curves. The household consumption behavior is therefore driven by three factors respectively related to necessities (e.g. food), luxuries (e.g. vehicles), and goods to which is allocated the same percentage of total budget both in rich and in poor households (e.g. housing).

Papers 2010 [back to top] Top

#1024 (PDF)
R. Joosten, R. Meijboom
Stochastic games with endogenous transitions
We introduce a stochastic game in which transition probabilities depend on the history of the play, i.e., the players' past action choices. To solve this new type of game under the limiting average reward criterion, we determine the set of jointly-convergent pure-strategy rewards which can be supported by equilibria involving threats. We examine the following setting for motivational and expository purposes. Each period, two agents exploiting a fishery choose between catching with restraint or without. The fish stock is in either of two states, High or Low, and in the latter each action pair yields lower payoffs. Restraint is harmless to the fish, but it is a dominated strategy in each stage game. Absence of restraint damages the resource, i.e., the less restraint the agents show, the higher the probabilities that Low occurs at the next stage of the play. This state may even become 'absorbing', i.e., transitions to High become impossible.
#1023 (PDF)
Jeroen C. J. M. van den Bergh
Environmental and Climate Innovation: Limitations, Prices and Policies
There is currently much hope about environmental innovation and green technologies, notably as a response to the threat of climate change. This paper offers a critical perspective on the role of technological innovation to solving environmental problems, based on considering empirical economic studies, energy and environmental rebound, the energy return on energy investment (EROEI) of alternative energy technologies, and various crowding out effects. Features of green technologies and motives of green innovators are briefly discussed. This is followed by an examination of the desirable mix of environmental and innovation policies to stimulate environmental innovation, to escape current and to evade early new lock-ins, and to avoid the occurrence of a "green paradox". This involves an evaluation of specific policy instruments from an environmental innovation angle. An extended argument is offered to clarify that environmental (CO2) pricing is crucial – even though insufficient – for environmental innovation to deliver definite solutions. In other words, environmental innovation (policy) is no substitute for environmental regulation (through prices). The paper also discusses the importance for environmental innovation of international agreements for regulation of greenhouse gas emissions and international coordination of innovation efforts.
#1022 (PDF)
C. Cordes, C. Schubert
Role Models that Make You Unhappy: Light Paternalism, Social Learning and Welfare
Behavioral (e.g. consumption) patterns of boundedly rational agents can lead these agents into learning dynamics that appear to be "wasteful" in terms of well-being or welfare. Within settings displaying preference endogeneity, it is however still unclear how to conceptualize well-being. This paper contributes to the discussion by suggesting a formal model of preference learning that can inform the construction of alternative notions of dynamic well-being. Based on the assumption that interacting agents are subject to two biases that make them systematically prefer some cultural variants over others, a procedural notion of well-being can be developed, based on the idea that policy should identify and confine conditions that generate dynamic instability in preference trajectories.
#1021 (PDF)
A. Lorentz, M. Savona
Structural Change and Business Cycles: An Evolutionary Approach
The aim of this paper is to account for both the short-run fluctuations and the very-long run transformations induced by technological change in analysing long-run growth patterns. The paper investigates the possible imprint left by short-run fluctuations on the long run dynamics by affecting the mechanisms underlying structural change. To fulfil this aim, we revert to a growth model with evolutionary microfounded structural change. The model endogenies both technical change and changes in patterns of final and intermediate demand as affecting macro-economic growth, through the structural change of the economy. This work is in line with the attempts to embracing in a unifying framework both neo-Schumpeterian and Keynesian line of thoughts in explaining economic growth. This model directly extends the one presented in Lorentz and Savona (2008). The paper reverts to numerical simulations to investigate both the imprint of various business cycles scenarios on the structural change patterns and the effect of various structural change scenarios on the amplitude of business cycles. We carry out the numerical simulation on the basis of the actual I-O coefficients for Germany. These numerical simulations show us that one the one hand, the factor at the source of business cycles drastically affect the patterns of structural change. On the other hand, the mechanisms at the core of structural change, generates business cycles as a by-product.
#1020 (PDF)
M. Binder, A. Coad
Life satisfaction and self-employment: A matching approach
Despite lower incomes, the self-employed consistently report higher satisfaction with their jobs. But are self-employed individuals also happier, more satisfied with their lives as a whole? High job satisfaction might cause them to neglect other important domains of life, such that the fulfilling job crowds out other pleasures, leaving the individual on the whole not happier than others. Moreover, self-employment is often chosen to escape unemployment, not for the associated autonomy that seems to account for the high job satisfaction. We apply matching estimators that allow us to better take into account the above-mentioned considerations and construct an appropriate control group. Using the BHPS data set that comprises a large nationally representative sample of the British populace, we find that individuals who move from regular employment into self-employment experience an increase in life satisfaction (up to two years later), while individuals moving from unemployment to self-employment are not more satisfied than their counterparts moving from unemployment to regular employment. We argue that these groups correspond to "opportunity" and "necessity" entrepreneurship, respectively. These findings are robust with regard to different measures of subjective well-being as well as choice of matching variables, and also robustness exercises involving "simulated confounders".
#1019 (PDF)
J. W. Stoelhorst
The firm as a Darwin machine: How Generalized Darwinism can further the development of an evolutionary theory of economic growth
The debate on the ontological foundations of evolutionary economics has reached a stage where discussions of these foundations are increasingly leading to the conclusion that there is a need to move from considerations of the general principles of evolutionary theory to the development of concrete middle-range theories of specific economic phenomena. The purpose of this paper is to engage in such an exercise. I explore to what extent the general principles of generalized Darwinism can further the development of an evolutionary theory of economic growth. I will demonstrate the value of generalized Darwinism in two steps. First, by showing how its explanatory logic helps identify some limitations in the seminal theories of economic growth developed by Schumpeter, Penrose, and Nelson and Winter. Second, by showing how the Darwinian logic helps integrate the strengths of these three theories. The result of this exercise is a theory of the firm as a Darwin machine that better captures the interplay of agency and structure in the accumulation of productive knowledge, which is central to the phenomenon of economic growth that Schumpeter, Penrose, and Nelson and Winter set out to explain.
#1018 (PDF)
A. Coad, M. Teruel
Inter-firm rivalry and firm growth: Is there any evidence of direct competition between firms?
Inter-firm competition has received much attention in the theoretical literature, but recent empirical work suggests that the growth rates of rival firms are uncorrelated, and that firm growth can be taken as an essentially independent process. We begin by investigating the correlations of the growth rates of competing firms (i.e. the largest and second-largest firms in the same industry) and observe that, surprisingly, the growth of these firms can be taken as independent. Nevertheless, peer-effect regressions, that take into account the simultaneous interdependence of growth rates of rival firms, are able to identify significant negative effects of rivals' growth on a firm's growth.
#1017 (PDF)
U. Witt
Economic Behavior - Evolutionary vs. Behavioral Perspectives
An evolutionary perspective on economic behavior has to account for the influences that the human genetic endowment has on the choices the agents make. Likely to have been fixed in times of fierce selection pressure, this endowment is presumably adapted to the living conditions of early humans. If at all, behavioral economics accounts for its influences on economic decision making in a way similar to the approach taken by evolutionary psychology, i.e. by focusing on decision heuristics and their tensions with modern rationality standards. In an evolutionary perspective, that focus needs to be extended so as to also embrace the motivational underpinnings of economic behavior. In the language of economics this means to inquire into the agents' preferences and to explain how they relate to the human genetic endowment and how they change over time. The paper discusses several implications of such an extension.
#1016 (PDF)
J. S. Woersdorfer
Consumer needs and their satiation properties as drivers of the rebound effect - The case of energy-efficient washing machines
The possibility of the "rebound effect" to technological progress has triggered a debate in energy economics concerning the usefulness of the promotion of efficiency progress. Until now, a multitude of empirical evidence has been gathered so to assess the magnitude of the effect in the first place. Progress in theoretical research has been rather modest, however. In this paper, we argue for a broadening of the theoretical basis beyond neoclassical consumer theory. We more specifically suggest turning toward consumption theories that deal with consumer needs and learning processes. We postulate that the rebound effect to energy efficiency progress is a special case of behavioral reactions to technological change more in general. Our central hypothesis is that rebound effects will only occur as long as the consumer needs appealed to by the product are not yet satiated. We exemplarily illustrate how to apply these arguments for the case of energyefficient washing machines.
J. Vromen
Heterogeneous Economic Evolution: A Different View on Darwinizing Evolutionary Economics
Inspired by Peter Godfrey-Smith's book Darwinian Populations and Natural Selection (2009), the paper seeks to develop a view on Darwinizing evolutionary economics that differs from the view espoused in Hodgson and Knudsen project of Generalized Darwinism. It is argued that on Hodgson and Knudsen's view "Darwinism" is understood on such a high level of abstraction and generality that it is emptied from virtually all content and substance. Only on the basis of a very abstract, general and broad understanding of the Darwinian principles of variation, selection and replication can Hodgson and Knudsen's claim be defended that any acceptable explanation must invoke the three Darwinian principles. The price they have to pay for this, however, is that the Darwinian principles provide little, if any, heuristic guidance to further theory construction. By contrast, on the alternative view developed in the paper "Darwinism" has a definite content. On the alternative view not all economic processes are Darwinian in kind: some economic processes appear as paradigmatically Darwinian, others only as minimally Darwinian and yet others as not Darwinian at all.

published in: Edward Elgar volume on Recent Economic Methology (Davis, J. and Hands, W., eds.), Cheltenham, Edward Elgar, 2011, p. 341 ff. DOI: 10.4337/9780857938077.00023
#1014 (PDF)
C. Manig
Is it ever Enough? Food Consumption, Satiation and Obesity
In order to explain the growth of obesity in industrialized and transition economies, a behavioral approach to food intake and overconsumption of calories is presented. It is argued that changes in food consumption patterns are one of the main drivers behind the imbalance of calories consumed and calories spent. The inclusion of new types of food in the regular diet of individuals led to changes in the motives for eating. While the intake of nutrients has always been and still is a prime motive of food consumption, it will be argued that with a growing variety of food items other motives increasingly take over as major drivers of the expanding food intake. These other motives also cause that the internal signals indicating to the body when to close a consumption act now occur with delay. The interrelation of biological and psychological factors and changes in the composition of diet therefore forms the basis for weight gain and, in the long run, obesity.
J. S. Woersdorfer, W. Kaus
Will imitators follow pioneer consumers in the adoption of solar thermal systems? Empirical evidence for North-West Germany
In Germany, solar thermal systems (STS) have only diffused to a minor extent yet. This paper analyzes, which demand side factors are decisive for the further proliferation of this environmentally benign technology. Making use of a consumer survey in North-West Germany in 2007, we examine the following parameters: positive environmental attitude, knowledge of the applicability of STS to satisfy consumer needs, and the presence of STS among peer consumers. Drawing upon theoretical foundations from innovation economics and evolutionary consumer theory, we posit that these variables play a different role at distinct stages of the product's diffusion process. Among nonowners, concrete plans to purchase a system within the subsequent two years are distinguished from the general interest to invest into this technology within the next five years. Probitmodels are estimated to test our hypotheses. Our results do not indicate a strong take-off of product diffusion within the next years. By generating interest for the product, knowledge and environmental attitude as well as household income are important determinants of prospective adoptions on the part of the potential imitators. However, only the behavior of peers appears to act as a trigger to the diffusion of this technology.

published as: "Will nonowners follow pioneer consumers in the adoption of solar thermal systems? Empirical evidence for northwestern Germany". Ecological Economics 70(12): 2282-2291 DOI:10.1016/j.ecolecon.2011.04.005.
J. F. Tomer
What Causes Obesity? And Why Has it Grown So Much? An Alternative View
The purpose of this paper is to explain the main social and economic facts concerning obesity in a way that substantially improves upon existing economic theory. In contrast to existing theory, a number of recent health science writers have explained persuasively that weight gain or loss is not strictly determined by net calorie consumption. These writers have explained that what food people eat and the effect these foods have on hormones such as insulin and hormonal balance are the crucial factors. To understand the rising prevalence of obesity, it is necessary to take into account the growing infrastructure of obesity. This infrastructure includes food processing firms, notably their behavior relating to the qualities of processed food, their marketing of "junk food" and fast food, and their food cost reducing technological changes. Another factor in rising obesity levels are the human capital resources of people, most notably their social capital, personal capital, and health capital. There is evidence that people who are poor in these intangible capacities are the ones with the highest rates of obesity. The essence of the theory is that obesity is the expected result when vulnerable people with low intangible capital resources encounter the many influences of the infrastructure of obesity. These people have gotten stuck in dysfunctional eating and exercise patterns which societal influences have unfortunately encouraged.

published in: Challenge, 2011, 54(4), 22-49 DOI:10.2753/0577-5132540402
#1011 (PDF)
L. Dudley
General Purpose Technologies and the Industrial Revolution
Did breakthroughs in core processes during the Industrial Revolution tend to generate further innovations in downstream technologies? Here a theoretical model examines the effect of a political shock on a non-innovating society in which there is high potential willingness to cooperate. The result is regional specialization in the innovation process by degree of cooperation. tests with a zero-inflated Poisson specification indicate that 116 important innovations between 1700 and 1849 may be grouped into three categories: (1) General Purpose Technologies (GPTs) tended to be generated in large states with standardized languages following transition to pluralistic political systems; (2) GPTs in turn generated spillovers for their regions in technologies where cooperation was necessary to integrate distinct fields of expertise; (3) however, GPTs discouraged downstream innovation in their regions where such direct cooperation was not required.
M. Binder, A. Coad
Going Beyond Average Joe's Happiness: Using Quantile Regressions to Analyze the Full Subjective Well-Being Distribution
Standard regression techniques are only able to give an incomplete picture of the relationship between subjective well-being and its determinants since the very idea of conventional estimators such as OLS is the averaging out over the whole distribution: studies based on such regression techniques thus are implicitly only interested in Average Joe's happiness. Using cross-sectional data from the British Household Panel Survey (BHPS) for the year 2006, we apply quantile regressions to analyze effects of a set of explanatory variables on different quantiles of the happiness distribution and compare these results with an ordinary least squares regression. We also analyze some reversed relationships, where happiness enters the regression equation as an explanatory variable (e.g., the effects of happiness on individual's financial success). Among our results we observe a decreasing importance of income, health status and social factors with increasing quantiles of happiness. Another finding is that education has a positive association with happiness at the lower quantiles but a negative association at the upper quantiles.

published as: "From Average Joe's happiness to Miserable Jane and Cheerful John: using quantile regressions to analyze the full subjective well-being distribution", online first in: Journal of Economic Behavior & Organization, 2011, doi:10.1016/j.jebo.2011.02.005.
#1009 (PDF)
Roger D. Congleton
On the Evolution of Organizational Government
This paper analyzes the design, refinement, and evolution of organizational policymaking processes, that is to say, organizational governance. Governance procedures like other aspects of organization are refined through time to advance formeteur interests. Several mechanisms of evolution are explored in this paper. First, formal organizations have a beginning. They are founded. As a consequence, governance templates initially tend to maximize formeteur control over their organizations. Second, formeteurs may subsequently revise the initial distribution of authority. There are often good reasons for formeteurs to exchange some of their initial authority for services and resources that advance organizational interests. Third, there are the constraints of survivorship, which require an organization to attract sufficient resources to be self sustaining. This paper suggests that the results of these processes of refinement tend to be rule-driven, divided governments, many of which will be based on the king and council template. That template facilitates the emergence of relatively effective forms of organizational governance, because it can be adjusted at a large number of margins without changing the essential architecture of governance.
#1008 (PDF)
A. Chai
Consumer specialization and the Romantic transformation of the British Grand Tour of Europe
This paper posits that significant changes in 19th century British recreational travel patterns resulted from a change in the manner in which tourists used entertaining stimuli in order to attain pleasure. Consumers no longer merely viewed arousing stimuli, but attempted to use them to produce emotional states of being which they could partially modify to intensify pleasurable feelings (Damasio 2003). The impetus for this modification stemmed from an increasing awareness that emotional responses could be to some degree self-cultivated, as embodied in the Romantic ethos that become popular at the time via the emergence of the paperback novel and magazine industry (Campbell 1987). By learning how to manipulate and modify mental images in a way that may not necessarily correspond with objective reality, Romantic tourists learned to elicit pleasure through engaging of their imagination. Such a change in the mode of pleasure seeking had important long run economic consequences for tourist regions throughout the European continent.

published in: Journal of Bioeconomics, Volume 13, Number 3, 181-203, DOI:10.1007/s10818-011-9110-4.
G. Levit, U. Hossfeld, U. Witt
Can Darwinism Be "Generalized" and of What Use Would This Be?
It has been suggested that, by generalizing Darwinian principles, a common foundation can be derived for all scientific disciplines dealing with evolutionary processes, especially for evolutionary economics. In this paper we show, however, that the principles of such a "Generalized Darwinism" are not those that in the development of evolutionary biology have been crucial for distinguishing Darwinian from non-Darwinian approaches and, hence, cannot be considered genuinely Darwinian. Moreover, we wonder how "Generalized Darwinism" can be made fruitful for evolutionary economics given that its principles are but an abstract hull that does not suffice to explain actual evolutionary processes in the economy. To that end specific hypotheses are required which neither follow from, nor are necessarily compatible with, the suggested abstract principles. Accordingly, we find little evidence in the literature for the claim that Generalized Darwinism can enhance the explanatory power of an evolutionary approach to economics.

published in: Journal of Evolutionary Economics, Online First™, 30 June 2011, DOI:10.1007/s00191-011-0235-3.
#1006 (PDF)
A. Coad, A. Segarra, M. Teruel
Like milk or wine: Does firm performance improve with age?
Our empirical literature review shows that little is known about how firm performance changes with age, presumably because of the paucity of data on firm age. For Spanish manufacturing firms, we analyse the firm performance related to firm age between 1998 and 2006. We find evidence that firms improve with age, because ageing firms are observed to have steadily increasing levels of productivity, higher profits, larger size, lower debt ratios, and higher equity ratios. Furthermore, older firms are better able to convert sales growth into subsequent growth of profits and productivity. On the other hand, we also found evidence that firm performance deteriorates with age. Older firms have lower expected growth rates of sales, profits and productivity, they have lower profitability levels (when other variables such as size are controlled for), and also that they appear to be less capable to convert employment growth into growth of sales, profits and productivity.
#1005 (PDF)
U. Witt, C. Schubert
Extending the Informational Basis of Welfare Economics: The Case of Preference Dynamics
Normative reasoning in welfare economics and social contract theory usually presumes invariable, context-independent individual preferences. Following recent work particularly in behavioral economics this assumption is difficult to defend. This paper therefore explores what can be said about preferences and their changes from a motivation-theoretic perspective, i.e. by explaining what motivates economic agents in making their choices and what mechanisms of change are at work here. We show that on this basis it is possible to complement social welfare assessments by a differential weighing of different human motivations which is derived from empirically informed foundations rather than from ad hoc arguments.
M. Binder, A. Coad
Disentangling the Circularity in Sen's Capability Approach – An Analysis of the Co-Evolution of Functioning Achievement and Resources
There is an ambiguity in Amartya Sen's capability approach as to what constitutes an individual's resources, conversion factors and valuable functionings. What we here call the "circularity problem" points to the fact that all three concepts seem to be mutually endogenous and interrelated. All three are entangled and it can be conjectured that some functionings are resources for the achievement of other functionings, some resources can be conceived to be actually valuable functionings, and both could be conversion factors in the achievement of other functionings. To econometrically account for this interdependency we suggest a panel vector autoregression approach. We analyze the intertemporal interplay of the above factors over a time horizon of fifteen years using the BHPS data set for Great Britain, measuring individual well-being in functionings space with a set of basic functionings, comprising "being happy", "being healthy", "being nourished", "moving about freely", "being well-sheltered" and "having satisfying social relations". We find that there are indeed functionings that are resources for many other functionings (viz. "being happy") while other functionings are by and large independent, thus shedding light on a facet of the capability approach that has been neglected so far.

published in: Social Indicators Research 2011, Volume 103, Number 3, 327-355, DOI: 10.1007/s11205-010-9714-4.
W. Kaus
Conspicuous Consumption and Race: Evidence from South Africa
A century ago, Thorstein Veblen introduced socially contingent consumption into the economic literature. This paper complements the scarce empirical
literature by testing his conjecture on South African household data and finds that Black and Coloured households spend relatively more on visible consumption than comparable White households. In an emerging economy context, this is especially important as it carries implications for spending on future assets. This paper explores whether the differences in visible expenditures can be explained with a signaling model of status seeking. Among Black households, spending on visible consumption is found to change predictably with different reference group incomes.

published in: Journal of Development Economics. 100(1): 63-73, DOI:10.1016/j.jdeveco.2012.07.004.
#1002 (PDF)
A. Coad, W. Hölzl
Firm growth: empirical analysis
Recent research has led to the empirical regularity that firm growth rate distributions are heavy tailed. This finding implies that a few firms experience spectacular growth rates and decline, but that most firms have marginal growth rates. The literature on high growth firms shows that high growth firms are the central drivers of job creation in the economy but that these firms are neither clustered in high technology sectors nor are these firms necessarily young and small. The evidence on the determinants of firm growth confirms that firm growth is difficult to predict. The finding that firm growth is well approximated by a random process does not only reflect the heterogeneity at the firm level but is also associated with the low persistence of growth rates over time.
#1001 (PDF)
G. M. Hodgson
A Philosophical Perspective on Contemporary Evolutionary Economics
There has been a remarkable growth in evolutionary economics since the 1980s. But despite this outward success there has been inner disagreement on fundamental issues including the building blocks of evolutionary theory and the very meaning of 'evolution' itself. This essay provides a philosophical perspective on both the defining agreements and ongoing disputes within evolutionary economics. Its primary emphasis is on ontology. It shows that some major disputes derive not from incompatible propositions but the choice of different levels of analysis. A route toward reconciliation of different viewpoints is thus exposed.

Papers 2009 [back to top] Top

U. Witt
Emergence and Functionality of Organizational Routines An Individualistic Approach
The functionality of organizational routines, i.e. the factual value for accomplishing their purposes, is an important constraint on the capabilities an organization can bring to bear on its operations. Often falling short of its potential, the actual make-up of organizational routines invites managerial attention. Of the criteria by which the functionality can be assessed, the generic one discussed in this paper is whose interests this make-up serves. This is determined by the conditions under which organizational routines emerge, particularly the cognitive and motivational attitudes of the organization members involved at this stage. By uncovering how these enhance or impair a routine's functionality for the organization's goals, the paper corroborates the relevance of an individualistic approach in organizational theory.

published in: Journal of Institutional Economics 2011, 7:2, 157–174, DOI:10.1017/S1744137410000226.
A. Coad
Investigating the exponential age distribution of firms
While several plots of the aggregate age distribution suggest that firm age is exponentially distributed, we find some departures from the exponential benchmark. At the lower tail, we find that very young establishments are more numerous than expected, but they face high exit hazards. At the upper tail, the oldest firms are older than the exponential would have predicted. Furthermore, the age distribution of international airline companies displays multimodality. Although we focused on departures from the exponential, we found that the exponential was a useful reference point and endorse it as an appropriate benchmark for future work on industrial structure.

published in: Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, 2010, vol. 4(17), pages 1-30.
#0922 (PDF)
C. Guenther
Pioneer burnout: Radical product innovation and firm capabilities
The question of whether and when to enter a newly emerging product market has been the focus of practitioners as well as researchers. This paper contributes to the literature by investigating the order of entry as well as pre-entry experiences with a population-based approach for the radically new product market of multifunctional machine tools for the case of Germany between 1949 and 2002. Estimation results show, that later entrants outperform pioneers. Moreover, it turns out that industry and technology specific capabilities do not increase survival chances. But when decomposing the known positive age effect on survival, we see that particularly dynamic capabilities, i.e. the competence to integrate additional business activities into the current product portfolio, significantly lower the risk of failure in the new product market.
C. Cordes, P. J. Richerson, G. Schwesinger
How Corporate Cultures Coevolve with the Business Environment: The Case of Firm Growth Crises and Industry Evolution
This paper shows how cognitive human dispositions that take effect at the level of an individual firm's corporate culture have repercussions on an industry's evolution. In our theory, the latter is attributable to evolving corporate cultures coupled with changes in a firm's business environment. With the help of a formal model of evolving corporate cultures, we demonstrate how firms can establish a cooperative cultural regime that yields competitive advantages in an innovative, fast changing environment. Depending on within-firm social learning processes and cognitive constraints of human agents, organizations then reach a critical cognitive firm size in their development beyond which the level of cooperation deteriorates rapidly – they systematically face a growth crisis. Organizations successful in such an environment and reaching a critical technological size may, however, reap economies of scale in a later, mature and stable business environment with altered corporate culture. Furthermore, we relate these findings to empirical evidence on firm survival and performance in different industries, the evolution of organizational structures, technological advancements in production technologies, and identify some determinants of market structures.

published in: Journal of Economic Behavior & Organization, Volume 76, Issue 3, December 2010, Pages 465-480. DOI:10.1016/j.jebo.2010.09.010.
#0920 (PDF)
G. Buenstorf, M. Geissler
Not invented here: Technology licensing, knowledge transfer and innovation based on public research
Using a new dataset encompassing more than 2,200 inventions made by Max Planck Society researchers from 1980 to 2004, we explore how licensee and technology characteristics affect the licensing and commercialization of technologies from public research. We find no evidence that spin-offs and external licensees systematically differ in their likelihood of successful commercialization. Technologies licensed to foreign firms are less often commercialized, which may reflect selection effects. Patented technologies and inventions by senior scientists are more likely to be licensed, but patent protection is related to lower commercialization odds and lower royalty payments.
#0919 (PDF)
V. J. Vanberg
Evolving Preferences and Policy Advice in Democratic Society
The theoretical consistency and practical applicability of traditional welfare economics has long been subject to controversy. More recently the challenge has been added from evolutionary approaches that the individual preferences on which the welfare calculus is based are themselves subject to change. The purpose of the present paper is twofold. It takes, firstly, a closer look at the discussion on the need and feasibility of an evolutionary welfare economics that accommodates evolving preferences. The particular focus is on proposal advanced by three authors, Carl Christian von Weizsäcker, Ulrich Witt and Robert Sugden. And it seeks, secondly, to show that the constitutional economics paradigm can deal with the evolving-preferences-issue in a more coherent and consistent way than approaches that remain within the mind-frame of welfare economics.

published in: “Evolving Preferences and Welfare Economics: The Perspective of Constitutional Political Economy”, in Jahrbücher für Nationalökonomie, Heft 02-03, 2014, pp. 328-349
#0918 (PDF)
M. Qizilbash
Well-Being, Preference Formation and the Danger of Paternalism
Informed or rational desire, capability and prudential value list views of well-being - must accommodate human limitations, as well as address issues about adaptation and paternalism. They sometimes address adaptation by toughening the requirement(s) on those desires, satisfaction of which constitutes well-being. That exacerbates a concern that these accounts if adopted will encourage policies which override actual desires and enforce paternalistic restrictions. Sunstein, like Sen, invokes democratic deliberation to address the adaptation problem, and advocates autonomy promoting paternalistic restrictions. Sunstein and Thaler's 'libertarian paternalism' extends this flavour of argument to cover examples of irrationality from behavioural economics. Their variation of the informed desire account involves highly idealized preferences which cannot, in practical terms, guide a paternalistic social planner, but lead to a potentially large range of cases where paternalistic intervention might, in principle, be justified. I argue that the liberal paternalist policy agenda should as currently conceived be resisted.
#0917 (PDF)
T. Grüne-Yanoff
Welfare Notions for Soft Paternalism
Recently, evidence from behavioural research has given rise to new arguments against anti-paternalism. This anti-anti-paternalism argues that certain kinds of paternalism - interventions in people's choices that improve their own good - are indeed permissible even when people's liberty is an important objective. These permissible kinds of paternalism are distinguished from non-permissible kinds by their characterisation as 'soft','weak', 'libertarian' or 'asymmetric'. In this paper, I argue that this distinction is based on the way 'people's good' is characterised: soft paternalists seek to respect the internalist intuition that for something to be a good to someone, she must be capable of caring about it. I show that this commitment conflicts with the behavioural evidence, if the welfare notion is not carefully specified. First, I review a number of possible welfare concepts and show that they do not resolve this conflict. Second, I discuss a welfare notion that respects the internalist intuition and does not conflict with the behavioural evidence. Soft paternalists, for better or worse, are committed to welfare notions of this form; the plausibility of the anti-anti-paternalist argument thus depends on the workability of such a concept.
R. Joosten
Paul Samuelson's critique and equilibrium concepts in evolutionary game theory
We present two new notions of evolutionary stability, the truly evolutionarily stable state (TESS) and the generalized evolutionarily stable equilibrium (GESE). The GESE generalizes the evolutionarily stable equilibrium (ESE) of Joosten [1996]. An ESE attracts all nearby trajectories monotonically, i.e., the Euclidean distance decreasing steadily in time. For a GESE this property should holds for at least one metric. The TESS generalizes the evolutionarily stable strategy (ESS) of Maynard Smith & Price [1973]. A TESS attracts nearby trajectories too, but the behavior of the dynamics nearby must be similar to the behavior of the replicator dynamics near an ESS. Both notions are defned on the dynamics and immediately imply asymptotical stability for the dynamics at hand, i.e., the equilibrium attracts all trajectories sufficiently nearby. We consider this the relevant and conceptually right approach in defining evolutionary equilibria, rather than defining a static equilibrium notion and search for appropriate dynamics guaranteeing its dynamic stability. Moreover, the GESE and the TESS take similar positions as the ESE and ESE do in relation to other equilibrium and fixed point concepts in general.

published in: Game Theory and Applications (L. Petrosjan & V. Mazalov, eds.), 2013, Vol. 16, Chapter 8
G. Buenstorf, S. Klepper
Submarket Dynamics and Innovation: The Case of the U.S. Tire Industry
Beginning in 1922, the rate of exit of U.S. tire producers increased sharply and the industry began a severe and protracted shakeout. Just five years earlier, the tire industry experienced a surge in entry that led to a rise of over 80% in the number of producers. We propose an explanation for this episode based on the idea of industry submarkets, which we incorporate in a model of shakeouts. We test this theory and alternative explanations for the surge in entry and exit and the shakeout using a novel data set on patenting in tires and production in the early 1920s of the cord tire, a key innovation we feature in our theory. Our analysis suggests that the development of a new submarket can open up opportunities for entry but also stimulate innovation and in the process reinforce the advantages of the leading incumbents, accentuating the shakeout of producers.

published in: Ind Corp Change (2010) 19 (5): 1563-1587. DOI:10.1093/icc/dtq044.
#0914 (PDF)
C. Schubert
Welfare Creation and Destruction in a Schumpeterian World
Economic change, while promoting innovation and growth, at the same time generates "gales of creative destruction". It is still largely unclear what this concept implies for the task of assessing welfare (and, correspondingly, the need for and scope of policy-making) in a novelty-generating, knowledge-based economy. Is novelty desirable per se? Is a rise of living standards due to innovation always worth the risks involved? Standard welfare economics is inherently incapable of answering these questions. By examining Joseph Schumpeter's explicit and implicit reasoning on welfare and linking his thoughts to recent ideas, within normative economics, on how to redefine "well-being" when preferences are variable and inconsistent, we argue that in an evolving economy, well-being should not be conceptualized in static preference-satisfaction terms, but rather in partly procedural terms of "effective preference learning".
updated version (2010/10)
C. Manig, A. Moneta
More Or Better? Measuring Quality Versus Quantity In Food Consumption
As people become richer they get the opportunity of consuming more but also qualitatively better goods. This holds for a basic commodity like food as well. We investigate food consumption in Russia, taking into account both expenditure and nutrition value in terms of calories. We analyze how food consumption patterns change with increasing income by estimating both "quantity Engel curves" and "quality Engel curves". The former describe the functional dependence of calories consumed on total expenditure. The latter trace out the dependence of price per calorie as a proxy for quality on total expenditure. We compare income elasticities of quantity with income elasticities of quality. In these Russian data for years 2000-2002 the reaction of quality to changes in income is significantly stronger than the reaction of quantity to income changes suggesting that Russian households tend to choose higher quality food items as income rises.
S. Bhaduri, H. Kumar
Tracing The Motivation To Innovate: A Study Of 'Grassroot' Innovators In India
Extrinsic motivations like intellectual property protections and fiscal incentives continue to occupy the centre stage in debates on innovation policies. Joseph Schumpeter had, however, argued that the motive to accumulate private property can only explain part of innovative activities. In his view, "the joy of creating, of getting things done" associated with the behavioural traits that "seek out difficulties…and takes delight in ventures" stand out as the most independent factor of behaviour in explaining the process of economic development, especially in early capitalist societies. Taking the case of 'grassroot' innovators in India, we re-examine the motivations behind innovative behaviour. We draw upon the literature on effectance motivation theory to construct operational indicators of extrinsic and intrinsic motivations. Interestingly, we find that pure extrinsic forms of motivation drive only a fraction of individual innovative behaviour. Also, importance of intrinsic motivation in guiding innovative behaviour is found to high when uncertainty is high. We accordingly draw a few policy implications.

published as: "Extrinsic and intrinsic motivations to innovate: tracing the motivation of 'grassroot' innovators in India", in: Mind & Society: Volume 10, Issue 1 (2011), Page 27. DOI 10.1007/s11299-010-0081-2.
#0911 (PDF)
K. Knottenbauer
Recent Developments in Evolutionary Biology and Their Relevance for Evolutionary Economics
The paper gives attention to the question of whether the development of evolutionary theories in biology over the last twenty years has any implications for evolutionary economics. Though criticisms of Darwin and the modern synthesis have always existed, most of them have not been widely accepted or have been absorbed by the mainstream. Recent findings in evolutio¬nary biology have started to question again the main principles of the modern synthesis. These findings suggest amongst others that the phenomena of co-operation, communication, and self-organization have been under-estimated, and that selection is not the predominant factor of evolution, but only one among many. Thus, in evolutionary economics, the question is whether the popular variation-retention-selection principle is still up to date. The implications for evolutionary economics with respect to analogies, generalized Darwinism, and the continuity hypothesis are also addressed.
#0910 (PDF)
C. Schubert
Darwinism in Economics and the Evolutionary Theory of Policy-Making
According to the advocates of a "Generalized Darwinism" (GD), the three Darwinian principles of variation, selection and retention can and should be used as a meta-theoretical framework for the explanation of evolutionary processes in the socio¬cultural domain. Despite their biological origins, GD aims at redefining them in a way that is supposed to abstract from any domain-specific particulars. We argue that in order to qualify as an adequate meta-theoretical framework for evolutionary economics, GD should be able to support and inspire viable practical policy implications. After examining its potential to do so, however, we conclude that GD risks systematically misguiding evolutionary policy advice.
updated version (2012/01)
J. S. Metcalfe
Technology and Economic Theory
Technology and technological change play a central role in economics, whether in the theory of resource allocation or in the theory of growth and development. Yet the nature of technology is largely ignored in economic theory, it being considered sufficient to treat technology as a constraint on productive opportunities. This short essay delves a little deeper into the nature of technology and the material, energy and information transformation processes that it represents. A deeper understanding of technology leads to a deeper understanding of the main currents of technological advance and to the reasons why the development of technology and its application are so uneven over time and place.

published in: Cambridge Journal of Economics 2010, 34, 153--171. DOI:10.1093/cje/bep075.
#0908 (PDF)
J. Schnellenbach, T. Baskaran, L. P. Feld
Creative Destruction and Fiscal Institutions: A Long-Run Case Study of Three Regions
We analyze the rise and decline of the steel and mining industries in the regions of Saarland, Lorraine und Luxemburg over a long period, from the mid-19th century to 2003. Our main focus in on the period of structural decline in these industries after the second world war. Differences in the institutional framework of these regions are exploited to analyze how the broader fiscal constitution sets incentives for governments to either obstruct or to encourage structural change in the private sector. Our main result is that fiscal autonomy of a region subjected to structural change in its private sector is associated with a relatively faster decline of employment in the sectors affected. Contrary to the political lore, fiscal transfers are not used to speed up the destruction of old sectors, but rather to stabilize incomes.
E. Stam
Entrepreneurship, Evolution and Geography
Entrepreneurship is a fundamental driver of economic evolution. It is also a distinctly spatially uneven process, and thus an important explanation of the uneven economic development of regions and nations. Not surprisingly, entrepreneurship is a key element of evolutionary economics (Schumpeter 1934; Witt 1998; Grebel et al. 2003; Metcalfe 2004; Grebel 2007) and has been recognized as an important element in explaining (regional) economic development (Acs and Armington 2004; Audretsch et al. 2006; Fritsch 2008). This means that the explanation of regional variations in entrepreneurship has also become an important issue. Even more so because there are pronounced differences within and between nations in rates of entrepreneurship and in their determinants (Bosma and Schutjens 2008), and these differences tend to be persistent over time, reflecting path dependence in industry structure (Brenner and Fornahl 2008), institutions (Casper 2007) and culture (Saxenian 1994) that vary widely across regions and countries, but are relatively inert over time. Introducing entrepreneurship into evolutionary economic geography means that the traditional focus on firms is complemented with a focus on individuals.
This paper is an inquiry into the role of entrepreneurship in evolutionary economic geography. The focus is on how and why entrepreneurship is a distinctly spatially uneven process. We will start with a discussion on the role of entrepreneurship in the theory of economic evolution. Next, we will review the empirical literature on the geography of entrepreneurship. The paper concludes with a discussion of a future agenda for the study of entrepreneurship within evolutionary economic geography.

published in: Boschma, R. & Martin, R.L. (eds) The Handbook of Evolutionary Economic Geography. 2010. Cheltenham: Edward Elgar. pp. 307-348.
#0906 (PDF)
F. Neffke, M. Svensson Henning
Skill-relatedness and firm diversification
According to the knowledge-based view of the firm, a firm's workforce is its most important resource, and firms often diversify into activities that allow them to leverage human resources. Human capital also represents a main asset for employees. When switching jobs, individuals are expected to remain in industries that value the skills that they have developed in their previous work. Based on this observation, this article develops theoretical arguments and a statistical method that uses cross-industry labor flows to assess the skill-relatedness between industries. Industries classified in different sectors of the economy sometimes exhibit strong skill-relatedness linkages. Also, industry space, i.e., the resulting network that connects industries with overlapping skill requirements, is highly predictive of diversification moves on the part of firms. Diversification is found to be over 100 times more likely to occur into industries that have ties to a firm's core activity in terms of skills than into industries that do not. This effect of skill-relatedness eclipses the effect of other types of relatedness, such as value chain linkages and classification-based relatedness.
updated version (2010/10)
#0905 (PDF)
Z. Babutsidze
Learning How to Consume and Returns to Product Promotion
This paper presents the computational model of consumer behaviour. We consider two sources of product specific consumer skill acquisition, termed here as learning how to consume: learning by consuming and consumer socialization. Consumers utilize these two sources in order to derive higher valuations for products they are consuming. In this framework we discuss the behavior of returns to product promotion relative to the changes in product characteristics, such as quality and user-friendliness, as well as in case of varying intensity of consumer socialization. The main finding is that in case of duopoly the dependence of returns to advertising on product quality is not monotonic as it has been claimed by earlier studies. Additional important finding indicating the importance of the models with interacting agents is that returns to advertising exhibit qualitatively different behavior in case of zero intensity of consumer socialization.

published as: "Returns to product promotion when consumers are learning how to consume" in Journal of Evolutionary Economics, Online First (5 January 2011). DOI:10.1007/s00191-010-0214-0.
M. Binder, A. Coad
An Examination of the Dynamics of Happiness Using Vector Autoregressions
We use a panel vector autoregressions model to examine the coevolution of changes in happiness and changes in income, health, marital status as well as employment status for the British Household Panel Survey (BHPS) data set. This technique allows us to simultaneously analyze the impact of the aforementioned factors on each other. We find that increases in happiness are associated with subsequent increases in income, marriage, employment, and health variables, while increases in the these life-domain variables (except health) tend to be followed by decreases in happiness in subsequent periods, suggesting adaptation dynamics in all domains. These findings are quite robust to different model specifications.

published in: Journal of Economic Behavior Organization 76 (2010)2, 352-371
C. Schubert
Is Novelty always a good thing? Towards an Evolutionary Welfare Economics
Schumpeter's and Hayek's view of market coordination as being not about efficiency, but about endogenous change and never-ending discovery has been increasingly recognized even by the mainstream of economics. Underlying this view is the notion of creative learning agents who bring about novelty. We argue that apart from the challenges it poses for positive theorizing, novelty (be it technological, institutional or commercial) also has a complex normative dimension that standard welfare economics is unsuited to deal with. We show that welfare economics has to be reconstructed on the basis of evolutionary-naturalistic insights into the way human agents bring about, value and respond to novelty-induced change.

published in: Journal of Evolutionary Economics, 2011, DOI: 10.1007/s00191-011-0257-x
#0902 (PDF)
Jeroen C. J. M. van den Bergh, G. Kallis
Evolutionary Policy
We explore the idea of public policy from the perspective of evolutionary thinking. This involves paying attention to concepts like diversity, population, selection, innovation, coevolution, group selection, path-dependence and lock-in. We critically discuss the notion of evolutionary progress. The relevance of evolutionary dynamics is illustrated for policy and political change, technical change, sustainability transitions and regulation of consumer behaviour. A lack of attention for the development of evolutionary policy criteria and goals is identified and alternative choices are critically evaluated. Finally, evolutionary policy advice is compared with policy advice coming from neoclassical economics, public choice theory and theories of resilience and adaptive management. We argue that evolutionary thinking offers a distinct and useful perspective on public policy design and change.
#0901 (PDF)
A. Lorentz
Evolutionary Micro-founded Technical Change and The Kaldor-Verdoorn Law: Estimates from an Artificial World
This paper proposes to identify the micro-level sources for the dynamic increasing returns occurring at an aggregate level. The paper reverts to a micro model of technological change in-line with the evolutionary literature on industrial dynamics. The data generated through numerical simulations are used to identify the sources of increasing returns as measured by the Kaldor-Verdoorn Law. In this respect we also aim to provide some plausible micro-foundations to this Law. The paper shows that: (i) Dynamic increasing returns appear as an emergent property of the model; (ii) micro-characteristics of technical change, as the amplitude and the frequency of changes, as well as selection mechanisms significantly shape these increasing returns.

Papers 2008 [back to top] Top

#0818 (PDF)
A. Chai, A. Moneta
Satiation, Escaping Satiation, and Structural Change: Some Evidence from the Evolution of Engel Curves
Certain properties of Engel curves have been linked to the occurrence of structural change in the economy (Pasinetti 1981, Metcalfe et al. 2006, Saviotti 2001). From an empirical perspective, however, very little has been done to examine (i) whether indeed satiation is a general property of Engel curves; (ii) whether the rate at which Engel curves converge to satiation may significantly change over time; and (iii) how stable Engel curves are across time such that it may be appropriate to use them to make predictions about structural change. Using data from the UK Family Expenditure Survey, this paper examines these three issues.
#0817 (PDF)
P. Pelikan
How to generalize Darwinism suitably to help understand both the evolution and the development of economies
This paper agrees that a suitably generalized Darwinism may help understand socioeconomic change, but finds the most publicized generalization by Hodgson and Knudsen unsuitable. To do better, it generalizes the extension of Neo-Darwinism into evolutionary developmental biology ("evo-devo"), which pays more attention to genomes-as-instructors than to genes-as-replicators, and to the entire process of instructed development than to fully developed organisms. The new generalization has clear connections to economics with a minimum guarantee of helpfulness: it generalizes both evo-devo and previously elaborated approaches that already helped understand specific issues of comparative economics, economic reforms, and transformation policies.
D. Fornahl, C. Guenther
Persistence and Change of Regional Industrial Activities – The Impact of Diversification in the German Machine Tool Industry
The paper Investigates stability and change of regional economic activities in the long-run. As the unit of analysis we selected the machine tool industry in West Germany for the years 1953 to 2002. We spot a strong variance in the activities between the different regions. These differences are relatively stable over time and the regional activities are rather path-dependent. Nevertheless, the paper also identifies changes in the level of activities. As the main driving factors for these changes we examine the effect of regional diversification strategies. We find that those regions pursuing a general diversification strategy have a higher likelihood to grow than regions which are specialising. Furthermore, diversification into totally new technological and product fields is only beneficial under specific circumstances based on technological and market developments. Hence, in most cases a broad diversification is superior to one focusing on new state-of-the-art technological fields.

published in: European Planning Studies , 2010, Volume 18, Issue 12. DOI:10.1080/09654313.2010.515790.
U. Witt
Symbolic Consumption and the Social Construction of Product Characteristics
As recognized since long, consumption serving to signal social status, group membership, or self-esteem is a socially contingent activity. The corresponding expenditures are motivated mainly by the symbolic value they have for transmitting the signal. However, this presupposes some form of social coordination on what are valid, approved symbols. Unlike consumption not serving signaling purposes, the technological characteristics of the goods and services consumed may be secondary – what counts is their socially agreed capacity to function as a symbol. The paper discusses in detail the cognitive underpinnings of social agreement on consumption symbols and a model of their spontaneous emergence.

published in: Structural Change and Economic Dynamics 21 (2010) 17–25;
#0814 (PDF)
G. Buenstorf, M. Geissler
The Origins of Entrants and the Geography of the German Laser Industry
Entry into an industry often clusters in regions where the industry is already concentrated, which is suggestive of agglomeration economies. Regional public research activities may exert another attracting force on entrants into science-based industries. Empirically these proximity effects are confounded by other influences on where entrants originate and locate. This paper begins to disentangle the effects of agglomeration, public research, and the supply of capable entrants for the German laser industry. Our findings indicate that the industry's geography was shaped by the local availability of potential entrants rather than localization economies. The impact of public research increased over time.
T. Ciarli, A. Lorentz, M. Savona, M. Valente
The Effect of Consumption and Production Structure on Growth and Distribution. A Micro to Macro Model
The paper contributes to the literature on the relation between structural changes in demand and supply and growth. We develop a macro-economic model with agent-based micro-foundations that articulates the links between production and organisational structures on the supply side, and the endogenous evolution of income distribution on the demand side. The model contains a simplified, though robust, representation of individual firms in the final goods and capital sectors and classes of workers/consumers. The results, in addition to addressing the technical issue of the model's robustness, illustrate the micro- and meso-properties of the simulated growth patterns. In particular, we observe and explain the interactions between technological change, firm organisation, income distribution, consumption behaviour and growth. The analysis performed on the simulated results broadly confirms and further extends the empirical evidence presented in the literature.

published in: Metroeconomica, 2010, Volume 61, Issue 1 (p 180-218) doi: 10.1111/j.1467-999X.2009.04069.x
#0812 (PDF)
B. Nooteboom
In what sense do firms evolve?
Does evolutionary theory help, for a theory of the firm, or, more widely, a theory of organization? In this paper I argue that it does, to some but also limited extent. Evolutionary theories of economies, and of culture, have acquired considerable following, but have also been subject to considerable criticism. Most criticism has been aimed at inappropriate biological analogies, but recently it has been claimed that a 'universal Darwinism', purged of all such mistaken analogy, is both useful and viable. Why should we try to preserve evolutionary theory, and will such theory stand up to sustained critical analysis? How useful is it for theory of the firm? Evolutionary theory appears to be the most adequate theory around for solving the problem of agency and structure, avoiding both an overly rational, managerial 'strategic choice' view of organizations and a 'contingency' view of organizations as fully determined by their environment. Whether universal Darwinism stands up to critical analysis remains to be seen. Here, the focus is on evolutionary theory of organization and of knowledge. Use is made of a constructivist 'embodied cognition' view of cognition and of elements of a cognitive theory of the firm.
R. Joosten, B. Roorda
Generalized projection dynamics in evolutionary game theory
We introduce a new kind of projection dynamics by employing a ray-projection both locally and globally. By global (local) we mean a projection of a vector (close to the unit simplex) unto the unit simplex along a ray through the origin. Using a correspondence between local and global ray-projection dynamics we prove that every interior evolutionarily stable strategy is an asymptotically stable fixed point. We also show that every strict equilibrium is an evolutionarily stable state and an evolutionarily stable equilibrium. Then, we employ several projections on a wider set of functions derived from the payoff structure. This yields an interesting class of so-called generalized projection dynamics which contains best-response, logit, replicator, and Brown-Von-Neumann dynamics among others.

published as: "On evolutionary ray-projection dynamics " online first in Mathematical Methods of Operations Research DOI 10.1007/s00186-010-0342-1
J. S. Woersdorfer
From Status-Seeking Consumption to Social Norms. An Application to the Consumption of Cleanliness
Interdependencies in consumer behavior stem from either status-seeking consumption or compliance with social norms. This paper analyzes how a consumption act changes from a means to signal the consumer's status to a means of norm compliance. It is shown that such a transformation can only be understood when consumer motivations other than social recognition are taken into account. We depict norm emergence as a learning process based on changing associations between a specific consumption act and widely shared, non-subjectivist consumer needs. Our conjectures are illustrated by means of a case study: the emergence of the cleanliness norm in the 19th century.

published in: Metroeconomica, 2010, Volume 61, Issue 1, Pages 35 - 67 doi: 10.1111/j.1467-999X.2009.04065.x
M. Barigozzi, L. Alessi, M. Capasso, G. Fagiolo
The Distribution of Consumption-Expenditure Budget Shares. Evidence from Italian Households
This paper explores the statistical properties of household consumption-expenditure budget shares distributions (HBSDs) – defined as the share of household total expenditure spent for purchasing a specific category of commodities – for a large sample of Italian households in the period 1989-2004. We find that HBSDs are fairly stable over time for each specific category, but profoundly heterogeneous across commodity categories. We then derive a parametric density that is able to satisfactorily characterize HBSDs and: (i) is consistent with the observed statistical properties of the underlying levels of household consumption-expenditure distributions; (ii) can accommodate the observed acrosscategory heterogeneity in HBSDs. Finally, we taxonomize commodity categories according to the estimated parameters of the proposed density. We show that the resulting classification is consistent with the traditional economic scheme that labels commodities as necessary, luxury or inferior.

published in: Empirical Economics, 2010, 38(3), 717-741.DOI:10.1007/s00181-009-0287-5.
#0808 (PDF)
A. Coad, J. P. Tamvada
The Growth and Decline of Small firms In Developing Countries
Empirical work on micro and small firms has focused on developed countries. The little work that exists on developing countries is all too often based on small samples taken from ad hoc questionnaires. The census data we analyze are fairly representative of the structure of small business in India. Consistent with prior research on developed countries, size and age have a negative impact on firm growth in the majority of specifications. The decision to export is a double-edged sword – if successful it can accelerate the growth of successful firms, but it can also increase the probability of decline. While proprietary ownership results in faster growth, enterprises managed by women are less likely to grow and more likely to decline. Although many small firms are able to convert knowhow into commercial success, we find that many others do not have any technical knowledge and some are unable to use it to their benefit.
A. Coad
Distance to Frontier and Appropriate Business Strategy
This paper is an empirical test of the hypothesis that the appropriateness of different business strategies is conditional on the firm's distance to the industry frontier. We use data on four 2-digit high-tech manufacturing industries in the US over the period 1972-1999, and apply semi-parametric quantile regressions to investigate the contribution of firm behavior to market value at various points of the conditional distribution of Tobin's q. Among our results, we observe that innovative activity, measured in terms of R&D expenditure or patents, has a strong positive association with market value at the upper quantiles (corresponding to the leader firms) whereas the innovative efforts of laggard firms are valued significantly less. Laggard firms, we suggest, should instead achieve productivity growth through efficient exploitation of existing technologies and imitation of industry leaders. Employment growth in leader firms is encouraged whereas growth of backward firms is not as well received on the stock market.

published as: "Appropriate business strategy for leaders and laggards", Industrial and Corporate Change, 2011, 20 (4), 1049-1079. DOI:10.1093/icc/dtr012.
K. Safarzynska, J. van den Bergh
Evolutionary Modelling in Economics: A Survey of Methods and Building Blocks
In this paper we present an overview of methods and components of formal economic models employing evolutionary approaches. This compromises two levels: (1) techniques of evolutionary modelling, including multi-agent modelling, evolutionary algorithms and evolutionary game theory; (2) building blocks or components of formal models classified into core processes and features of evolutionary systems - diversity, innovation and selection - and additional elements, such as bounded rationality, diffusion, path dependency and lock-in, co-evolutionary dynamics, multilevel and group selection, and evolutionary growth. We focus our attention on the characteristics of models and techniques and their underlying assumptions.

published in: Journal of Evolutionary Economics, 2010, Volume 20, Number 3, 329-373. DOI:10.1007/s00191-009-0153-9.
#0805 (PDF)
J. Vromen
Ontological issues in evolutionary economics: The debate between Generalized Darwinism and the Continuity Hypothesis
Hodgson and Knudsen's Generalized Darwinism (GD) and the Continuity Hypothesis (CH) put forward by Witt are currently vying for hegemony in the ontology of evolutionary economics. GD and the CH allegedly advance rivaling Darwinian foundations for the development of full-fledged causal evolutionary economic theories. Yet upon closer inspection it is not clear that GD and the CH are mutually exclusive rivals. For one thing, GD and the CH address different sorts of issues. Whereas GD aims at identifying general features that evolutionary processes in different domains (notably the biological and economic domain) have in common, the CH takes as its starting point the causal relations that obtain between antecedent biological evolution and ongoing economic evolution. It seems the one does not exclude the other. This impression is strengthened by the fact that Hodgson endorses rather than opposes something similar to the CH. The paper argues that the critical issue in settling whether or not GD and the CH are mutually exclusive is how much substantive content is given to GD and the CH respectively. Pushed by the critique of Witt (and some of his Evolutionary Economics Group members, Cordes and Buenstorf) that GD has not fully shaken off features that are specific for the biological domain, Hodgson and Knudsen seem to take recourse to a version of GD that is so abstract and general that it is rendered virtually vacuous. As such GD can not contribute much to the development of a full-fledged domain-specific causal economic theory of processes of economic change. It seems the CH fares better in this respect. The CH does offer building blocks for evolutionary theories of consumption and of production. But the problem with the GD is that it is unclear what constructive role (if any) Darwinian evolutionary theory has played in specifying the building blocks. The paper concludes with suggesting two other ways in which Darwinian evolutionary theory might be useful for studying economic evolution.
#0804 (PDF)
S. Bhaduri, H. Worch
Past Experience, Cognitive Frames, and Entrepreneurship: Some Econometric Evidence from the Indian Pharmaceutical Industry
The theoretical literature identifies three important entrepreneurial dimensions, namely discovering new opportunities, responsiveness to uncertainty, and coordination of a firm. In the empirical literature, past experience has been identified as having an important influence on organizational behavior. This literature, however, focuses predominantly on the impact of experience on new opportunities using a resource-based view and human capital perspective. In contrast, we draw upon the cognitive science literature to argue that past experience shapes an entrepreneur's cognitive frame, and, hence, influences entrepreneurship in a more holistic manner. We provide econometric evidence of the impact of past experience on all three entrepreneurial dimensions from the small scale Indian pharmaceutical enterprises.
U. Witt, C. Schubert
Constitutional Interests in the Face of Innovations: How Much Do We Need to Know about Risk Preferences?
In constitutional political economy, the citizens' constitutional interests determine the social contract that is binding for the post-constitutional market game. However, following traditional preference subjectivism, it is left open what the constitutional interest are. Using the example of risk attitudes, we argue that this approach is too parsimonious with regard to the behavioral foundations to support a calculus of consent. In face of innovative activities with pecuniary and technological externalities in the post-constitutional phase, the citizens' constitutional interests vary with their risk preferences. To determine what kind of social contract is generally agreeable, specific assumptions about risk preferences are needed.

published in: Constitutional Political Economy 19, 2008, 203-225.
#0802 (PDF)
A. Chai, A. Moneta
At the Origins of Engel Curves Estimation
This paper revisits Ernst Engel's (1857) original article in which he systematically investigated the relationship between consumption expenditure and income. While he is mainly remembered today for the discovery of Engel's law, we highlight how Engel addressed in a particular way the issue of the relation between statistical empirical analysis and economic theorizing. Inspired by an inductive methodology, Engel's method to inferempirical regularities made no a priori assumption on the estimated functional form and anticipates many aspects of current non-parametric regression methods. Furthermore, Engel devised a quasi-behavioral theory of consumption centered on the concept of wants to justify and explain his empirical results which he used to asses population living standards. Although incomplete, Engel's consumption theory tackles a much neglected issue in consumption theory: what accounts for the manner in which consumption patterns change as income rises.
#0801 (PDF)
J. Dormann, T. Ehrmann, M. Kopel
Managing the Evolution of Cooperation
Management scholars have long stressed the importance of evolutionary processses for inter-firm cooperation but have mostly missed the promising opportunity to incorporate ideas from evolutionary theories into the analysis of collaborative arrangements. In this paper, we first present three rules for the evolution of cooperation - kinship selection, direct reciprocity, and indirect reciprocity. Second, we apply our theoretical considerations, enriched with ideas from cultural anthropology, to the context of a specific and particularly attractive type of cooperative arrangement, the franchise form of organization. Third, we provide a preliminary empirical test with regards to conditions under which evolutionary modes can secure cooperative behavior. We conclude by summarizing our results and deriving fertile areas for further research.

Papers 2007 [back to top] Top

R. Joosten
Patience, Fish Wars, rarity value & Allee effects.
In a Small Fish War two agents interacting on a body of water have essentially two options: they can fish with restraint or without. Fishing with restraint is not harmful; shing without yields a higher immediate catch, but may induce lower future catches. Inspired by recent work in biology, we introduce into this setting rarity value and Allee effects. Rarity value means that extreme scarcity of the sh may affect its unit profit 'explosively'. An Allee effect implies that if the population size or density falls below a so-called Allee threshold, then only negative growth rates can occur from then on. We examine equilibrium behavior of the agents under the limiting average reward criterion and the sustainability of the common-pool resource system. Assuming fixed prices at first, we show that patience on the part of the agents is beneficial to both sustainable high catches and fish stocks. An Allee effect can not influence the set of equilibrium rewards unless the Allee threshold is (unrealistically) high. A price mechanism reflecting effects of the resource's scarcity, is then imposed. We obtain a rather subtle picture of what may occur. Patience may be detrimental to the sustainability of a high fish stock and it may be compatible with equilibrium behavior to exhaust the resource almost completely. However, this result does not hold in general but it depends on complex relations between the Allee threshold, the dynamics in the (interactive) resource and price systems, and the actual scarcity caused if the agents show no restraint.

published as: "Small Fish Wars: A New Class of Dynamic Fishery-Management Games", The IUP Journal of Managerial Economics.- Icfai Press, V,2007, 4, p. 17-30
#0723 (PDF)
T. Brenner, A. Mühlig
Factors and Mechanisms Causing the Emergence of Local Industrial Clusters - A Meta-Study of 159 Cases.
Local industrial clusters have attracted much attention in the recent economic and geographical literature. A huge number of case studies have been conducted. This paper presents a meta-analysis of the case studies of 159 local industrial clusters in various countries and industries. Based on an overview of the various theories and arguments about the emergence of such clusters in the literature, it analyses the involvement of 35 different local conditions and processes, providing a summary on the knowledge that is gathered in these case studies with a comparison between continents, new and old clusters, and high- and low-tech industries.
#0722 (PDF)
C. Cordes
Emergent Cultural Phenomena and their Cognitive Foundations
To explain emergent cultural phenomena, this paper argues, it is inevitable to understand the evolution of complex human cognitive adaptations and their links to the population-level dynamics of cultural variation. On the one hand, the process of cultural transmission is influenced and constrained by humans' evolved psychology; people tend to acquire some cultural variants rather than others. On the other hand, the cultural environment provides cultural variants that are transmitted to or adopted by individuals via processes of social learning. To gain insights into this recursive relationship between individual cognitive dispositions at the micro level and cultural phenomena at the macro level, the theory of gene-culture coevolution is applied. Moreover, a model of cultural evolution demonstrates the dissemination of novelty within a population via biased social learning processes. As a result, some unique facets of human behavior and cumulative cultural evolution are identified.
J. Henrich
The evolution of costly displays, cooperation, and religion. Inferentially potent displays and their implications for cultural evolution
This paper lays out an evolutionary theory for the cognitive foundations and cultural emergence of the extravagant displays (e.g., ritual mutilation, animal sacrifice, and martyrdom) that have so often tantalized social scientists, as well as more mundane actions that influence cultural learning and historical processes. In Part I, I use the logic of natural selection to build a theory for how and why seemingly costly displays influence the cognitive processes associated with cultural learning—why do "actions speak louder than words." The core idea is that cultural learners can avoid being manipulated by their potential models (those they are inclined to learn from) if they are biased toward models whose actions/displays would seem costly to the model if he held beliefs different from those he expresses verbally. I call these actions inferentially potent displays. Predictions are tested with experimental work from psychology. In Part II, I examine the implications for cultural evolution of this evolved bias in human cultural learning. The formal analytical model shows that this learning bias creates evolutionarily stable sets of interlocking beliefs and individually-costly practices. Part III explores how cultural evolution, driven by competition among groups or institutions stabilized at alternative sets of these interlocking belief-practice combinations, has led to the association of costly acts, often in the form of rituals, with deeper commitments to group beneficial ideologies, higher levels of cooperation within groups, and greater success in competition with other groups or institutions. Predictions are explored with existing cross-cultural, ethnographic, ethnohistorical and sociological data. I close by briefly sketching some further implications of these ideas for the study of religion and ritual.

published as: "The evolution of costly displays, cooperation, and religion: Credibility enhancing displays and their implications for cultural evolution." Evolution and Human Behaviour, 2009, 30, 244-260. DOI:10.1016/j.evolhumbehav.2009.03.005.
J. Henrich, R. Boyd
Division of Labor, Economic Specialization and the Evolution of Social Stratification
This paper presents a simple mathematical model that shows how economic inequality between social groups can arise and be maintained even when the only adaptive learning processes driving cultural evolution increases individual's economic gains. The key assumption is that human populations are structured into groups, and that cultural learning is more likely to occur within groups than between groups. Then, if groups are sufficiently isolated and there are potential gains from specialization and exchange, stable stratification can sometimes result. This model predicts that stratification is favored, ceteris paribus, by (1) greater surplus production, (2) more equitable divisions of the surplus among specialists, (3) greater cultural isolation among subpopulations within a society, and (4) more weight given to economic success by cultural learners. We also analyze how competition among societies, both egalitarian societies and those with differing degrees of stratification, influences the long-run evolution of the institutional forms that support social stratification. In our discussion, we illustrate the model using two ethnographic cases, explore the relationships between our model and other existing approaches to social stratification within anthropology, and compare our model to the emergence of heritable divisions of labor in other species.

published in: Current Anthropology, 49: 715-724, 2008. DOI: 10.1086/587889
U. Witt, C. Zellner
How Firm Organizations Adapt to Secure a Sustained Knowledge Transfer
New knowledge with potential commercial value is created, replicated, and transferred in a distributed manner. The highly systemic nature of knowledge production and the need for any knowledge to be individually acquired and expressed in order to produce an effect, jointly constrain the dynamics of knowledge commercialization. This paper analyzes the nature of these constraints from an individualistic perspective, focusing particularly on the often neglected entrepreneurial aspects of the knowledge transfer. It explains how the constraints are overcome by organizational adaptations inside firms so that a sustained knowledge transfer into the commercial sphere of the innovation system can be secured.

published in: Economics of Innovation and New Technology, Vol. 18, No. 7, 2009, 647 - 661.
G. Buenstorf
Opportunity Spin-offs and Necessity Spin-offs
Necessity spin-offs are organized by employees of incumbent firms to escape deteriorating job conditions. This paper proposes a conceptual model of the spin-off process. Necessity spin-offs are distinguished from opportunity spin-offs on the basis of their triggering events. An empirical analysis of German laser spin-offs traces differences in the performance and determinants of the two types of spin-offs. Necessity spin-offs are important to limit the devaluation of individual competences by the market process. They are particularly relevant in growth crises of innovative firms, and in the restructuring of economies with protected or state-owned companies.

published in: International Journal of Entrepreneurial Venturing, 1 (2009): 22-40. DOI:10.1504/IJEV.2009.023818.
A. Lorentz, M. Savona
Evolutionary Micro-dynamics and Changes in the Economic Structure
The paper aims to account for the empirical stylised facts related to changes in sectoral structures that have led to the growth of services in most advanced countries over recent decades. A growth model with evolutionary micro-founded structural change is developed, which formalises the role of technical change and changes in intermediate demand as they affect the evolution of the sectoral composition of the economy and macro-economic growth. Firstly, we provide a micro-foundation for the Kaldorian Cumulative Causation mechanism. Secondly, we account for (demand-related) macro-constraints affecting the micro-behaviour of firms in the decision to adopt technology. We also formalise the mechanisms transmitting the effects of micro-behaviour on aggregate growth, via changes in the intermediate linkages and sectoral composition of the economy. The simulated results are based on the use of the actual data, including Input-Output (I-O) coefficients in the case of Germany. Three scenarios are identified, which account for the effects of a set of key parameters on changes in the structure of the economy.

published in: Journal of Evolutionary Economics, 2008, Vol 18(3/4), 389-412, DOI 10.1007/s00191-008-0096-6 And in: Uwe Cantner ; Jean-Luc Gaffard ; Lionel Nesta, (eds.) Schumpeterian perspectives on innovation, competition and growth, Berlin, Springer, 2009, pp. 139-162.
#0716 (PDF)
G. M. Hodgson, T. Knudsen
From Group Selection to Organizational Interactors
This paper builds on previous work within the conceptual framework of a generalized Darwinism that clarifies such concepts as selection and replication. One of its aims is to refine the concept of the interactor. An overview of the conditions under which group selection may occur helps us identify factors such as structural coherence that are useful in defining the interactor. This in turn leads to the question of selection on multiple levels. An additional level of replication emerges when we consider routines within organizations and the social positions related to them. The analysis here establishes that social organizations including business firms are often interactors. Such organizations are more than simply groups because of the existence of routines and social positions. Accordingly, to understand firms and other organizations, we need more that a "dual inheritance" theory; we have to consider the replication of social positions and routines as well.
#0715 (PDF)
A. Coad
Disentangling the firm growth process: evidence from a recursive panel VAR.
We attempt to describe the coevolution of employment growth, sales growth and growth of profits in a panel of French manufacturing firms 1996-2004. Our analysis entails 'recursive' panel vector autoregressions, whereby we impose the structure of employment growth leading to contemporaneous sales growth, which in turn is associated with contemporaneous growth of profits. We observe that whilst employment growth has a direct negative association with profit growth, there are indirect effects through which employment growth leads to sales growth which in turn has a large effect on profits growth. The net effect of employment growth is thus positive growth of profits. Counter to some 'replicator dynamics' theories of industrial development, profit growth is not followed by much subsequent growth of employment.
#0714 (PDF)
R. Wenting, K. Frenken
Firm Entry and Institutional Lock-in: An Organizational Ecology Analysis of the Global Fashion Design Industry.
Few industries are more concentrated than the global fashion industry. We analyse the geography and evolution of the ready-to-wear fashion design industry by looking at the yearly entry rates following an organizational ecology approach. In contrast to earlier studies on manufacturing industries, we find that legitimation effects are local and competition effects are global. This result points to the rapid turnover of ideas in fashion on the one hand and the global demand for fashion apparel on the other hand. We attribute the decline of Paris in the post-war period to 'institutional lock-in', which prevented a ready-to-wear cluster to emerge as vested interested of haute couture designers were threatened. An extended organizational ecology model provides empirical support for this claim.
C. Cordes
The Role of Biology and Culture in Veblenian Consumption Dynamics.
This paper incorporates aspects of humans' evolved cognition into a formal model of cultural evolution and scrutinizes their interactions with population-level processes. It is shown how the biased transmission of different kinds of behavior via cultural learning processes influences agents' consumption behavior. Thereby, the model's learning dynamics are capable of generating typical Veblenian consumption dynamics. Based on these insights, the paper then scrutinizes on the role of humans' biological heritage and Darwinian concepts in the development of economic theories in general. Moreover, the relation of the ontological basis of biological and cultural evolution is addressed.

published in: Journal of Economic Issues, 43(2009)1, pp. 115 - 141
U. Witt, T. Brenner
Output Dynamics, Flow Equilibria and Structural Change – A Prolegomenon to Evolutionary Macroeconomics
In an evolutionary approach to macroeconomics, the market disequilibrium dynamics resulting from structural change need to be properly represented at the aggregate level. As suggested by the late F.A.Hayek, a suitable equilibrium concept required to this end as a frame of reference, is that of a flow equilibrium. The paper explores the corresponding flow dynamics that draw attention to variables not usually considered in macroeconomic theorizing. Using statistical estimates for these new variables for the West German manufacturing sector during the German unification process allows some important new insights on the relationships between structural change and macroeconomic performance.

published in: Journal of Evolutionary Economics, Vol. 18 (2), 2008, 249-260
#0711 (PDF)
J. Vromen
Generalized Darwinism in Evolutionary Economics: The Devil is in the Details
Hodgson and Knudsen want their version of Generalized Darwinism to meet two /desiderata. /First, their formulation of Darwinism should be sufficiently general and abstract, so that it only refers to general, domain-unspecific features that processes of biological and of socio-cultural evolution have in common with each other. Their formulation should leave out features of Darwinism that are specific to the biological domain only. Second, their version should be able to guide the development of theories that can causally explain processes of economic evolution. Hodgson and Knudsen argue that the latter – going from their abstract and general formulation of Darwinism to such full-fledged economic theories – is a matter of adding details that are specific to the economic domain. Both desiderata seem reasonable. Yet they pull in opposite directions. It is argued that in order to meet the first desideratum the formulation of Darwinism should be so general and abstract that it is bereft of any substance and content and, as such, of little use in guiding further theory development. If going from such a formulation to a full-fledged economic theory is called a matter of adding details, the devil surely is in the details.
A. Coad, R. Rao
Firm Growth and R&D Expenditure
We apply a panel vector autoregression model to a firm-level longitudinal database to observe the co-evolution of sales growth, employment growth, profits growth and growth of R&D expenditure. Contrary to expectations, profit growth seems to have little detectable effect on R&D investment. Instead, firms appear to increase their total R&D expenditure following growth in sales and growth of employment. In a sense, firms behave 'as if' they aim for a roughly constant ratio of R&D to employment (or sales). We observe heterogeneous effects for growing or shrinking firms however, suggesting that firms are less willing to reduce their R&D levels following a negative growth shock than they are willing to increase R&D after a positive shock.

published in: Economics of Innovation and New Technology, 2010, 19: 2, 127-145. online first: DOI: 10.1080/10438590802472531
#0709 (PDF)
C. Antonelli
Localized Technological Knowledge: Pecuniary Knowledge Externalities And Appropriability
Recent advances in the economics of knowledge highlight the key role of pecuniary knowledge externalities in explaining the system dynamics of total factor productivity growth. When non-exhaustible technological knowledge is an input both in the production of new goods and of further knowledge, and the acquisition of external knowledge, as a non-disposable input in the production of new knowledge, is not free, pecuniary externalities, as opposed to technological externalities, provide an important clue to understanding the key role of knowledge governance mechanisms in assessing the rate of growth of total factor productivity and economic systems at large. The negative effects upon appropriability limit the advantages of agglomeration.
M. Qizilbash
The Adaptation Problem, Evolution and Normative Economics
Amartya Sen has advanced a number of distinct arguments against utilitarianism and 'utility'-based views more generally. One of these invokes various ways in which underdogs can 'adapt' and learn to live with their situations. Sen's argument is related to Jon Elster's discussion of 'adaptive preferences' but is distinct in part because Sen cites the need for underdogs to survive. When read in combination with his discussion of Darwinism, Sen's discussion of adaptation is relevant to recent work in normative economics which is influenced by evolutionary biology. It poses a problem for Richard Layard's book on happiness, particularly its policy conclusions. It also poses a problem for Ken Binmore's account of justice because the empathetic preferences in terms of which interpersonal comparisons are made in Binmore's account are formed through social evolution.

published in: Arguments for a Better World: Essays in Honour of Amartya Sen Vol.1 Ethics, Welfare and Measurement (Kanbur, R. and Basu, K. eds.), Oxford University Press, 2009, pp. 50-67
U. Witt
Novelty and the Bounds of Unknowledge in Economics
The emergence of novelty is a driving agent for economic change. New technologies, new products and services, new institutional arrangements, to mention a few examples, are the backbone of development and growth. Important though it is, the emergence of novelty is not well understood. What seems to be clear, however, is that it implies "bounds of unknowledge" (Shackle) that impose epistemological and methodological constraints on economic theorizing. In this paper, the problems will be examined, possibilities for positively theorizing about novelty will be explored, and the methodological consequences for causal explanations and the modeling of economics dynamics will be discussed.

published in: Journal of Economic Methodology, 16 (4) December 2009, 361-375.
G. Buenstorf, C. Cordes
Can Sustainable Consumption Be Learned?
This paper shows how sustainable consumption patterns can spread within a population via processes of social learning even though a strong individual learning bias may favor environmentally harmful products. We present a model depicting how the biased transmission of different behaviors via individual and social learning influences agents' consumption behavior. The underlying learning biases can be traced back to evolved cognitive dispositions. Challenging the vision of a permanent transition toward sustainability, we argue that "green" consumption patterns are not self-reinforcing and cannot be "locked in" permanently.

published as: "Can sustainable consumption be learned? A model of cultural evolution" in Ecological Economics, Volume 67, Issue 4, 1 November 2008, Pages 646-657, DOI: 10.1016/j.ecolecon.2008.01.028.
A. Coad, R. Rao
The Employment Effects of Innovations in High-Tech Industries
The issue of technological unemployment receives perennial popular attention. Although there are previous empirical investigations that have focused on the relationship between innovation and employment, the originality of our approach lies in our choice of method. We focus on four 2-digit manufacturing industries that are known for their high patenting activity. We then use Principal Components Analysis to generate a firm- and year-specific 'innovativeness' index by extracting the common variance in a firm's patenting and R&D expenditure histories. To begin with, we explore the heterogeneity of firms by using semi-parametric quantile regression. Whilst some firms may reduce employment levels after innovating, others increase employment. We then move on to a weighted least squares (WLS) analysis, which explicitly takes into account the different job-creating potential of firms of different sizes. As a result, we focus on the effect of innovation on total number of jobs, whereas previous studies have focused on the effect of innovation on firm behavior. Indeed, previous studies have typically taken the firm as the unit of analysis, implicitly weighting each firm equally according to the principle of 'one firm equals one observation'. Our results suggest that firm-level innovative activity leads to employment creation that may have been underestimated in previous studies.

published as: "The Firm-level Employment Effects of Innovations in High-tech US Manufacturing Industries" in Journal of Evolutionary Economics, 2011, 21 (2), 255-283. DOI: 10.1007/s00191-010-0209-x.
#0704 (PDF)
S. E. G. Lea, L. Newson
Prospects for an evolutionary economic psychology: Buying and consumption as a test case
Until a few generations ago, humans made their living by foraging, like other animals. We have therefore inherited genes that allowed our ancestors to thrive as hunters and gatherers. Thriving in a modern economy requires very different behaviours but we cope because the human brain evolved to be flexible with the ability to form cooperative networks with other humans and to maintain the shared body of information, expertise and values which we call "culture". We argue that human economic behaviour is influenced by both the genes and the culture that we "inherit" and that both are a result of a Darwinian evolutionary process. An evolutionary approach is therefore likely to be of value in developing theories of economic behaviour. We then use this approach to analyse in broad terms how people that are born with the brains of foragers living in a small-scale society become consumers in a modern society and where this behaviour is likely to lead our species.
#0703 (PDF)
A. Coad
Firm Growth: A Survey
We survey the phenomenon of the growth of firms drawing on literature from economics, management, and sociology. We begin with a review of empirical 'stylised facts' before discussing theoretical contributions. Firm growth is characterized by a predominant stochastic element, making it difficult to predict. Indeed, previous empirical research into the determinants of firm growth has had a limited success. We also observe that theoretical propositions concerning the growth of firms are often amiss. We conclude that progress in this area requires solid empirical work, perhaps making use of novel statistical techniques.
R. Joosten
Strategic Advertisement with Externalities: A New Dynamic Approach
We model and analyze strategic interaction over time in a duopolis-tic market. Each period the firms independently and simultaneously choose whether to advertise or not. Advertising increases the own immediate sales, but may also cause an externality, e.g., increase or decrease the immediate sales of the other firm ceteris paribus. There exists also an effect of past advertisement efforts on current sales. The 'market potential' of each firm is determined by its own but also by its opponent's past efforts. A higher effort of either firm leads to an increase of the market potential, however the impact of the own past efforts is always stronger than the impact of the opponent's past efforts. How much of the market potential materializes as immediate sales, then depends on the current advertisement decisions. We determine feasible rewards and (subgame perfect) equilibria for the limiting average reward criterion using methods inspired by the repeated-games literature. Uniqueness of equilibrium is by no means guaranteed, but Pareto efficiency may serve very well as a refinement criterion for wide ranges of the advertisement costs.

published in: Modeling, Computation and Optimization (S.K. Neogy, A.K. Das & R.B. Bapat, eds.), Vol. 6 of the ISI Platinum Jubilee Series, World Scientific Publishing Company, Singapore, ISBN 978-9-8142-7350-3, pp. 21-43, 2009
U. Witt
Heuristic Twists and Ontological Creeds - Road Map for Evolutionary Economics
What is special about the evolutionary approach? This question is given quite different, and partly incommensurable, answers in evolutionary economics. The present paper shows how the different answers correspond with, on the one hand, the particular heuristic twists by which the corresponding authors arrive at their hypotheses (e.g. by borrowing analogies from evolutionary biology). On the other hand, the answers hinge on different ontological assumption (i.e. on whether or not evolution in nature and in the economy are viewed as belonging to the same sphere of reality and, hence, as mutually dependent processes). By distinguishing these two dimensions a road map for evolutionary economics is drawn up that helps to better understand where, and why, the competing interpretations differ. In order to assess their achievements and their potential for future research, some results of an opinion poll among evolutionary economists are presented and discussed.

published in: Hanappi, H. and Elsner, W. (eds.) Advances in Evolutionary Institutional Economics: Evolutionary Mechanisms, Non-Knowledge and Strategy, Cheltenham: Edward Elgar, 2008, pp. 9-34.

Papers 2006 [back to top] Top

S. T. Silva, A. C. Teixeira
On the divergence of research paths in evolutionary economics: a comprehensive bibliometric account
In the last two decades there has been a noticeable increase in published research in evolutionary economics. The idea that formal modelling is a sine qua non condition for establishing a rigours and coherence scientific frame, has led to an over concern with formalization issues among evolutionary researchers. The general perception is that formalization lags behind the appreciative work. Notwithstanding, this general reading has not yet been supported by real data analysis. This work presents a comprehensive survey on evolutionary economics, intending at exploring the main research paths and contributions of this theorizing framework using bibliometric methods. This documentation effort is based on an extensive review of the abstracts from articles published in all economic journals gathered from the Econlit database over the past fifty years. Evolutionary contributions apparently have not converged to an integrated approach. In the present paper, we document the more important paths emergent in this field. Before 1990, the importance of published evolutionary related research is almost negligible - more than 90% of total papers were published after that date. Our results further show two rather extreme main research strands: 'History of Economic Thought and Methodology' and 'Games'. Moreover, formal approaches have a reasonable and increasing share of published papers between 1969 and 2005. In contrast, purely empirical-related works are relatively scarce, involving a meagre and stagnant percentage of published works. This recalls for a need to redirect the evolutionary research agenda.

published as: "On the divergence of evolutionary research paths in the past 50 years: a comprehensive bibliometric account" in: Journal of Evolutionary Economics. Vol. 19 (5), 2009, 605-642.
G. Buenstorf
Comparative Industrial Evolution and the Quest for an Evolutionary Theory of Market Dynamics
The paper makes the case for an empirically grounded, "bottom-up" approach to theory building in evolutionary industrial economics. This approach is based on studying systematically selected industries that are comparable in key dimensions. It opens up opportunities for testing the relevance, preconditions, and generality of explanatory factors in industry evolution. An illustration of the approach is subsequently given by presenting some findings on the evolution of the historical U.S. farm tractor industry.

published in: Hanappi, H. and Elsner, W. (eds.) Advances in Evolutionary Institutional Economics: Evolutionary Mechanisms, Non-Knowledge and Strategy, Cheltenham: Edward Elgar, 2008, pp. 59-78.
#0622 (PDF)
E. Khalil
Charles Darwin meets Amoeba economicus: Why Natural Selection Cannot Explain Rationality.
Advocates of natural selection usually regard rationality as redundant, i.e., as a mere linguistic device to describe natural selection. But this "Redundancy Thesis" faces the anomaly that rationality differs from natural selection. One solution is to conceive rationality as a trait selected by the neo-Darwinian mechanism of natural selection as . But this "Rationality-qua-Trait Thesis" faces a problem as well: Following neo-Darwinism, one cannot classify one allele of, e.g., eyesight as better than another without reference to constraints while one can classify rationality as better than irrationality irrespective of constraints. Therefore, natural selection cannot be a trait. This leads us to the only solution: Rationality is actually a method that cannot be reduced to a trait. This "Rationality-qua-Method Thesis" lays the ground for alternative, developmental views of evolution.
V. J. Vanberg
Rationality, Rule-Following and Emotions: On the Economics of Moral Preferences
The long-standing critique of the 'economic model of man' has gained new impetus not least due to the broadening research in behavioral and experimental economics. Many of the critics have focused on the apparent difficulty of traditional rational choice theory to account for the role of moral or ethical concerns in human conduct, and a number of authors have suggested modifications in the standard model in response to such critique. This paper takes issue with a quite commonly adopted 'revisionist' strategy, namely seeking to account for moral concerns by including them as additional preferences in an agent's utility function. It is argued that this strategy ignores the critical difference between preferences over outcomes and preferences over actions, and that it fails to recognize that 'moral preferences' belong into the second category. Preferences over actions, however, cannot be consistently accounted for within a theoretical framework that focuses on the rationality of single actions. They require a shift of perspective, from a theory of rational choice to a theory of rule-following behavior.

published as: "On the economics of moral preferences" in: The American Journal of Economics and Sociology, Oct, 2008
G. Buenstorf, D. Fornahl
B2C - Bubble to Cluster: The Boom, Spin-off Entrepreneurship, and Regional Industry Evolution
This article studies entrepreneurial activities emerging out of one of Germany's most prominent firms: Intershop, a maker of e-commerce software. We show that Intershop spawned at least 30 spin-offs. The majority entered locally, giving rise to a small but growing software cluster and counteracting the job losses accompanying the parent firm's drastic downsizing after 2000. We trace the knowledge transfer from Intershop to the spin-offs and relate it to recent theorizing on the spin-off process as well as spin-off-based cluster formation. The Intershop case suggests that temporarily successful dot.coms could exert lasting effects on regional development.

published as: 'B2C - bubble to cluster: the dot-com boom, spin-off entrepreneurship, and regional agglomeration', in: Journal of Evolutionary Economics, Vol. 19 (3), 2009, 349-378.
F. Malerba, R. Nelson, L. Orsenigo, S. Winter
Vertical Integration and Dis-integration of Computer Firms - A History Friendly Model of the Co-evolution of the Computer and Semiconductor Industries
In this paper we present a history-friendly model of the changing vertical scope of computer firms during the evolution of the computer and semiconductor industries. The model is "history friendly", in that it attempts at replicating some basic, stylized qualitative features of the evolution of vertical integration on the basis of the causal mechanisms and processes which we believe can explain the history. The specific question addressed in the model is set in the context of dynamic and uncertain technological and market environments, characterized by periods of technological revolutions punctuating periods of relative technological stability and smooth technical progress. The model illustrates how the patterns of vertical integration and specialization in the computer industry change as a function of the evolving levels and distribution of firms' capabilities over time and how they depend on the co-evolution of the upstream and downstream sectors. Specific conditions in each of these markets - the size of the external market, the magnitude of the technological discontinuities, the lock-in effects in demand - exert critical effects and feedbacks on market structure and on the vertical scope of firms as time goes by.

published in: Industrial and Corporate Change (2008) Volume: 17, Issue: 2, Pages: 197-231.DOI: 10.1093/icc/dtn001.
C. Cordes, P. Richerson, R. McElreath, P. Strimling
How Does Opportunistic Behavior Influence Firm Size?
This paper relates firm size and opportunism by showing that, given certain behavioral dispositions of humans, the size of a profit-maximizing firm can be determined by cognitive aspects underlying firm-internal cultural transmission processes. We argue that what firms do better than markets - besides economizing on transaction costs - is to establish a cooperative regime among its employees that keeps in check opportunism. A model depicts the outstanding role of the entrepreneur or business leader in firm-internal socialization processes and the evolution of corporate cultures. We show that high opportunism-related costs are a reason for keeping firms' size small.

published as: "How does opportunistic behavior influence firm size? An evolutionary approach to organizational behavior" in Journal of Institutional Economics (2011), 7: 1, 1–21. DOI:10.1017/S1744137410000123.
G. Buenstorf
Is Academic Entrepreneurship Good or Bad for Science? Empirical Evidence from the Max Planck Society
Based on new data, this paper studies invention disclosure, licensing, and firm formation activities of Max Planck Institute directors over the time period 1985-2004, and analyzes their effects on scientists' publication and citation records. The results are consistent with prior findings that inventing does not adversely affect research output. More mixed results are obtained with regard to academic entrepreneurship. The analysis raises questions vis-à-vis earlier explanations for positive relationships between inventing and publishing. It finds little evidence than inventors learn from interacting with firms. Likewise, license revenues do not enable scientists to step up their research activities.

published as: "Is Commercialization Detrimental to Basic Science? Individual-Level Evidence from the Max Planck Society" in Research Policy (2009) Volume: 38, Issue: 2, Pages: 281-292. DOI: 10.1016/j.respol.2008.11.006 <>.
#0616 (PDF)
D. Ross
Moral fictionalism, preference moralization and anti-conservatism: why metaethical error theory doesn't imply policy quietism
The evolutionary explanation of human dispositions to prosocial behaviour and to moralization of such behaviour undermines the moral realist's belief in objective moral facts that hold independently of people's contingent desires. At the same time, advocacy of preferences for significant departures from hallowed policies (that is, for 'loud policies') is generally sure to be ineffective unless it is moralized. It may seem that this requires the economist who would advocate loud policies, but is also committed to a naturalistic account of human social and cognitive behaviour, to engage in wilful manipulation, morally hectoring people even when she knows that her doing so ought rationally to carry no persuasive force. Furthermore, it might be wondered on what basis just for herself an error theorist about morality advocates loud policies. I argue that understanding the role of moralized preferences in the maintenance of the self, and in turn understanding the economic rationale of such self-maintenance, allows us to see how and why preferences can be moralized by a believer in error theory without this implying hypocrisy or manipulation of others.
#0615 (PDF)
D. Mueller
Democracy, Rationality and Morality
The fundamental, underlying assumption in economics, public choice, and increasingly in political science and other branches of the social sciences is that individuals are rational actors. Many people have questioned the realism of this assumption, however, and considerable experimental evidence seems to refute it. This paper builds on recent findings from the field of evolutionary psychology to discuss the evolution of rational behavior in humans. It then goes on to relate this evolutionary process to the evolution of political institutions and in particular of democratic institutions.
#0614 (PDF)
K Binmore
The Origins of Fair Play
This paper gives a brief overview of an evolutionary theory of fairness. The ideas are fleshed out in Binmore's book 'Natural Justice' (Oxford University Press, New York, 2005.), which is itself a condensed version of his earlier two-volume book 'Game Theory and the Social Contract' (MIT Press, Cambridge, MA, 1994 and 1998).
U. Witt
Evolutionary Economics and Psychology
Evolutionary economics is a paradigm for explaining the transformation of the economy. To achieve its goal, it needs being founded on a proper theory of economic behavior. The paper discusses these foundations. It is argued that the historical malleability of economic behavior is based on the interactions between innate behavior dispositions and adaptation mechanisms on the one hand and the limited, and always selective, cognitive and observational learning that contributes to an ever more extended and differentiated action knowledge. The implications of this interpretation are outlined in an exemplary fashion for the case of the evolution and growth of consumption.

published in: Lewis, A. (ed) The Cambridge Handbook of Psychology and Economic Behaviour, Cambridge: Cambridge University Press, 2008, pp. 493-511.
T. Broekel, M. Binder
The Regional Dimension of Knowledge Transfers - A Behavioral Approach
Innovations are inherently connected to knowledge transfers. The need of face-to-face contacts to transfer tacit knowledge is commonly argued to cause a regional dimension of innovative activities. The paper presents an alternative explanation based on a model of boundedly rational actors who search for knowledge. It is shown that a regional dimension exists in these processes that results from a regional bias in an actor's search activities. Social embeddedness, a shared regional identity and limited spatial mobility foster this bias. We argue that insights from research on these topics can help to define the geographic size of a region.

published in: Industry & Innovation, Vol. 14(2), 2007, 151 - 175.
#0611 (PDF)
C. Werker
An Assessment of the Regional Innovation Policy by the European Union based on Bibliometrical Analysis
The Lisbon strategy for growth and jobs seeks to use knowledge and innovation in the context of the European Research Area (ERA). To build the ERA the European Union (EU) implements – amongst others - regional innovation policy. Ample scientific publications have investigated how innovation drives regional dynamics. Therefore, we assess the goals of European regional innovation policy in the light of the scientific findings, which we collected and condensed by bibliometrical analysis. The general goals of the Lisbon strategy to at the same time stimulate growth and achieve cohesion of economic activities across the EU is not in line with the finding that positive cumulative and self-reinforcing processes go hand in hand with the agglomeration of economic activities. However, the goals of the specific innovation policies for the regional level are mainly in line with the scientific findings.
K. Dopfer
The Origins of Meso Economics. Schumpeter's Legacy
The paper unravels the subversive nature of Schumpeter's proposition that entrepreneurs carry out innovations (the micro level), that swarms of followers imitate them (meso) and that, as a consequence, 'creative destruction' leads to economic development 'from within' (macro). It is argued that Schumpeter paved the way for a new micro–meso–macro framework in economics. Centre stage is meso. Its essential characteristic is bimodality, meaning that one idea (the generic rule) can be physically actualised by many agents (a population). Ideas can relate to others, and, in this way, meso constitutes a structure component of a 'deep' invisible macro structure. Equally, the rule actualisation process unfolds over time – modelled in the paper as a meso trajectory with three phases of rule origination, selective adoption and retention – and here meso represents a process component of a visible 'surface' structure. The universal macro measure with a view to the appropriateness of meso components is generic correspondence. At the level of ideas, its measure is order; at that of actual relative adoption frequencies, it is generic equilibrium. Economic development occurs at the deep level as transition from one generic rule to another, inducing a change of order, and at the surface level as the new rule is adopted, destroying an old equilibrium and establishing a new one. The final third of the paper discusses a few of the rich set of major contributions to the Neo-Schumpeterian – micro-meso-macro - programme

published in: Journal of Evolutionary Economics, 2012, Volume 22, Number 1, 133-160
#0609 (PDF)
R. Koppl
Democratic Epistemics: An Experiment on How to Improve Forensic Science
In "monopoly epistemics", one privileged actor is asked to identify the truth. In "democratic epistemics," several independent parties are asked. In an experiment contrasting them, democratic epistemics reduced the systemic error rate by two-thirds, supporting the claim that replacing monopoly epistemics with democratic epistemics would reduce error rates in forensic science and other areas. It also suggests first, the potential of "epistemic systems design," which employs the techniques of economic systems design to address issues of veracity, rather than efficiency, and second, the value of "experimental epistemology," which employs experimental techniques in the study of science. Research of the sort described here puts evolutionary epistemology into practice by seeking to find the proper design principles for error-correcting social institutions.
T. Brenner, A. Gildner
Long-term Implications of Local Industrial Clusters
Local industrial clusters have attracted much attention in recent economic
and geographic literature. The focus has been on identifying the conditions for the emergence of such clusters. Here the long-term implications of local industrial clusters are studied. To this end, we examine German regions where those that contain long-existing industrial clusters are compared to all other regions. We statistically examine what characterises regions that have contained local industrial clusters for quite some time. The analysis is conducted separately for three industries.

published in: European Planning Studies, Vol. 14, No. 9, October 2006, 1315-1328
M. Binder, U. Niederle
Institutions as Determinants of Preference Change – A One Way Relation?
In recent economic literature, there has been an increasing interest in modelling preferences as endogenous. Some arguments go along the lines that institutions shape preferences. This paper suggests that adopting a more substantive concept of preferences furthers our understanding of how they systematically shape institutions. We integrate social-psychological concepts and combine them with an account of learning. Thus, a model of the dynamic interrelation between preferences and institutions can be developed. While institutional change can certainly be partly explained in terms of changing incentives, we offer an approach that goes beyond the standard explanation.

published in: Hanappi, H. and Elsner, W. (eds.), Advances in Evolutionary Institutional Economics: Evolutionary Mechanisms, Non-Knowledge and Strategy, Cheltenham: Edward Elgar, 2008, pp. 97-120.
C. Cordes, P. J. Richerson, R. McElreath, P. Strimling
A Naturalistic Approach to the Theory of the Firm: The Role of Cooperation and Cultural Evolution
One reason why firms exist, this paper argues, is because they are suitable organizations within which cooperative production systems based on human social predispositions can evolve. In addition, we show how an entrepreneur – given these predispositions – can shape human behavior within a firm. To illustrate these processes, we will present a model that depicts how the biased transmission of cultural contents via social learning processes within the firm influence employees' behavior and the performance of the firm. These biases can be traced back to evolved social predispositions. Humans lived in tribal scale social systems based on significant amounts of intra- and even intergroup cooperation for tens if not a few hundred thousand years before the first complex societies arose. Firms rest upon the social psychology originally evolved for tribal life. We also relate our conclusions to empirical evidence on the performance and size of different kinds of organizations. Modern organizations have functions rather different from ancient tribes, leading to friction between our social predispositions and organization goals. Firms that manage to reduce this friction will tend to function better.

published in: Journal of Economic Behavior & Organization, Vol. 68 (1), 2008, 125 - 139.
U. Witt
Evolutionary Economics
This article reviews the way of thinking about economic problems and the research agenda associated with the evolutionary approach to economics. This approach generally focuses on the processes that transform the economy from within and on their consequences for firms and industries, production, trade, employment and growth. The article highlights the major contributions to evolutionary economics and explains its key concepts together with some of their implications.

published in: The New Palgrave Dictionary of Economics Online. Palgrave Macmillan. 20 May 2008. <> doi:10.1057/9780230226203.0511
A. Frenzel Baudisch
Consumer heterogeneity evolving from social group dynamics. Latent class analyses of German footwear consumption 1980-1991
Boundedly rational consumers rely on their social environment as a source of information. Drawing upon psychological theories about social comparison processes, we hypothesize that social reference groups underlie market segments. New reference groups can emerge from social comparison processes, leading to the establishment of new submarkets and the evolution of aggregate consumer heterogeneity. These propositions are tested with series of cross-sectional surveys on footwear consumption of German men between 1980 and 1991. Using latent class models, we describe the emergence of the submarket for athletic shoes as a function of the appearance and establishment of a new social consumer group.

published in: Journal of Business Research, Vol 60 (8) 2007, 836-847
#0603 (PDF)
A. Frenzel Baudisch
Continuous Market Growth Beyond Functional Satiation. Time-Series Analyses of U.S. Footwear Consumption, 1955-2002
Market growth is driven by product innovation. Beyond functional satiation the marginal utility of product performance and variety decreases. We argue that social comparisons underlying innovation diffusion results in consumer motivations for upward assimilation toward the behavior of better performing others, even beyond functional requirements. We distinguish consumption growth patterns driven by functional vs. assimilating motivations. These patterns are tested by time-series analyses of U.S. Footwear consumption between 1955 and 2002. The acceleration of market growth since the 1970s is statistically explained by changes in price, cross-price elasticity, and the increasing demand for innovations, according to our theoretical account of consumption motivations beyond functional satiation.
T. Brenner, C. Werker
A Practical Guide to Inference in Simulation Models
This paper introduces a categorization of simulation models. It provides an explicit overview of the steps that lead to a simulation model. We highlight the advantages and disadvantages of various simulation approaches by examining how they advocate different ways of constructing simulation models. To this end, it discusses a number of relevant methodological issues, such as how realistic simulation models are obtained and which kinds of inference can be used in a simulation approach. Finally, the paper presents a practical guide on how simulation should and can be conducted.

published as: 'A Taxonomy of Inference in Simulation Models' in: Computational Economics, Vol. 30 (3), October 2007, 227-244.
G. Buenstorf
Perception and pursuit of entrepreneurial opportunities: an evolutionary economics perspective
Considerable debate surrounds the concept of entrepreneurial opportunities. This paper contributes to the discussion by bringing in concepts and findings from evolutionary economics. It makes three points. First, adopting an evolutionary market process perspective sheds new light on the nature of opportunities. Second, not only the pursuit of entrepreneurial opportunities, but also the further development of the entrepreneurial venture is dependent on subjective opportunity perception and interpretation. Third, findings on industry evolution help understand how opportunities, as well as agents' ability and willingness to pursue them, change over time. Effects of pre-entry experience on opportunity recognition and firm performance are also discussed.

published as: "Creation and pursuit of opportunities: an evolutionary economics perspective." in Small Business Economics, 2007, 28, 323-337. DOI: 10.1007/s11187-006-9039-5.

Papers 2005 [back to top] Top

U. Witt
Reasoning About Novelty
Novelty is ubiquitous in science, technology, and economic life. It drives the growth of human knowledge. However, an analysis of novelty and its emergence faces deep epistemological and methodological problems. Despite its great significance, novelty is therefore a neglected topic in scientific discourse. To make headway, this paper distinguishes principles of generating and interpreting novelty. Insoluble problems are shown to reside in the interpretation part. At an abstract level, they can be circumvented and the nature and some effects of novelty be discussed. A notion of degrees of novelty can thus be derived and compared to degrees of (un-) certainty.

published as: "Propositions about Novelty" in: Journal of Economic Behavior & Organization, Vol. 70, 2009, 311-320. doi:10.1016/j.jebo.2009.01.008
#0523 (PDF)
T. Brenner
A Stochastic Theory of Geographic Concentration and the Empirical Evidence in Germany
A stochastic model of the evolution of the firm population in a region and industry is developed. This model is used to make predictions about the expected probability distribution of the firm number in regions and their dynamics. Data on the spatial distribution of firms in Germany is used to check the predictions and estimate the parameters of the model. This is done for 196 industries separately.
#0522 (PDF)
C. Schubert
Fairness in Urban Land Use: An Evolutionary Contribution to Law & Economics
Markets for complex, multi-faceted goods normally require a complex institutional framework to function properly, i.e., to lead to patterns of outcomes that are deemed acceptable by the individuals involved. This paper examines the institutional underpinnings of the market for urban land use rights, taking both German and U.S. public and private land use law as a case in point. Apart from efficiency considerations that have been discussed in the literature, the individuals' preferences regarding the fairness of (i) the contents of urban land use rights and (ii) the distribution of costs and benefits induced by innovative land uses have been largely neglected. It is argued that investigating the impact of these preferences (and the underlying informal fairness norms) on the legal treatment of land use rights provides a key opportunity to construct an alternative Law & Economics approach that is compatible with an evolutionary perspective on economic land use decisions.
A. Marciano
Economists on Darwin's theory of social evolution and human behaviour
The purpose of this article is to analyse the way economists interested in social and economic evolution cite, mention or refer to Darwin. We focus on the attitude of economists towards Darwin's theory of social evolution – an issue he considered as central to his theory. We show that economists refer to and mention Darwin as a biologist and neglect or ignore his theory of social and cultural evolution. Three types of reference are identified: first, economists view and quote Darwin as having borrowed concepts from classical political economists, Malthus and Smith. Darwin is then mentioned to emphasize the existence of economic theories of social evolution. Second, economists refer to and cite Darwin from the perspective of the use of biological concepts in social sciences. Darwin's biological theories are then equated with those of Spencer. From these two perspectives, Darwin's theory of social evolution is ignored and Darwin considered as a biologist exclusively. Third, economists acknowledge the existence of Darwin's general (biological and social) theory of evolution. Darwin is then considered and quoted as a biologist and a social evolutionist.

published as: "Economists on Darwin's theory of human nature", The European Journal of the History of Economic Thought, 2007, 14 (4), 681-700.
G. Buenstorf
Evolution on the Shoulders of Giants: Entrepreneurship and Firm Survival in the German Laser Industry
This paper studies 40 years of evolution in the German laser industry to test the generality of evolutionary patterns observed in the U.S. laser industry. Key characteristics found in the U.S. industry are also present in Germany. There is sustained entry into the industry, and neither a shakeout nor first-mover advantages of early entrants are observed. A survival analysis finds that similar to the U.S. industry, laser firm spin-offs were systematically more successful than academic startups. Differences in survival and determinants of the spin-off process are traced for alternative kinds of spin-offs, including firms started by serial entrepreneurs.

published in: Review of Industrial Organization, 30 (2007), 179-202.
M. A. Maggioni, T. E. Uberti
International networks of knowledge flows: an econometric analysis
In this paper we address the manifold nature of knowledge through the analysis of four distinct but complementary phenomena (Internet hyperlinks, European research networks, EPO co-patent applications, Erasmus students mobility) that characterize knowledge as an intrinsic relational structure (directly) connecting people, institutions and (indirectly) regions across five European countries. We study the structure (in terms of density, clustering and centralisation) of these networks through network analysis techniques and test the influence of geographical distance as opposed to sectoral (based on the industrial distribution of the innovative activity) and functional (based on the value of the RSII European technological leadership index) distances in shaping the strength of knowledge relations though a gravitational model. The empirical analysis shows the existence of a polarized centre-periphery hierarchy of European regions that is reflected in the structure of knowledge flows. By using a "gravitational" model we demonstrate that, far from the claim of the "death of distance", geographic distance is still relevant for determining the structure of inter-regional knowledge flows. Functional and sectoral distances play also a crucial role suggesting that knowledge flows easily between similar (according to their scientific, technological and sectoral characteristics) regions. If the EU intends to build a "truly European" Research Area in which the networking of "centres of excellence" acts as "catalysts for backward areas" this target may still be far away.

published as: "Inter-Regional Knowledge Flows in Europe: an econometric analysis", in: Frenken K. (ed.) Applied Evolutionary Economics and Economic Geography, Cheltenham: Edward Elgar, 2005, 230-255.
K. Chandrasekhar, S. Bhaduri
Vicarious Learning and Socio-Economic Transformation in Indian Trans-Himalaya: An evolutionary tale of economic development and policy making
Recently, it has been suggested that the process of economic development should ideally be viewed as a socioeconomic transformation. Such a view requires a comprehensive understanding of how agents learn and change their behaviour. However, these aspects have only been inadequately addressed in development theory. This paper argues that social-cognitive vicarious learning theories can become a useful methodological tool by incorporating a triadic interaction between personal factors (beliefs, values), behaviour and environment. Our analysis is based on a survey of the Indian trans-Himalayan regions. The development trajectory of these regions suggests that a proper understanding of the vicarious learning mechanism provides crucial insight into the speed of socioeconomic transformations. It also helps to identify appropriate change agents within a society and, in turn, underscores the need for a comprehensive, yet flexible, development policy framework.

published as: "Vicarious Learning to Transform: An evolutionary tale of economic development in Indian Trans-Himalaya." in: Komol Singha (ed.)Village development in North-East India: new approaches. New Dehli: Concept Publishing Company, 2007, 29-51.
#0517 (PDF)
C. Schubert
A Note on the Principle of 'Normative Individualism'
According to the principle of Normative Individualism, the evaluation of economic states and processes should be guided exclusively by the wishes of the individuals who are seen as the only bearer of values. Despite its intuitive appeal and its almost universal acceptance in normative economics (i.e., Welfare Economics as well as Constitutional Economics), the principle itself has received only scarce, mostly skeptical attention in the literature. It has even less been discussed from an explicitly evolutionary perspective on human preference formation processes. It is argued that the principle may be made compatible with such a perspective if it is transformed into a concept of "developmental individualism" that encompasses three sets of criteria, viz. preference-based, opportunity-based and distributive justice criteria.
#0516 (PDF)
T. Brenner
The Regional Industry-size Distribution - An Analysis of all Types of Industries in Germany
This paper studies the distribution of the number of firms and employees in regions and industries. Various predictions for this distribution are deduced from theoretical considerations. Then, the empirical distributions of 198 industries in Germany are analysed. It is found that different kinds of industries show quite different distributions.
#0515 (PDF)
C. Baden-Fuller, S.G. Winter
Replicating Organizational Knowledge: Principles or Templates?
We discuss how firms can replicate practices and knowledge embedded in practices by following principles, with no direct reference to an extant working example (template). Definitions are provided for the key concepts of templates, principles, and background knowledge. We address the challenges of providing operational measures for successful replication, and for comparing the efficacy of principles and templates. By using two longitudinal case studies of replication across the units of two multi-unit organizations, we support the central claim that in certain circumstances replication by principles can be as speedy and cost effective as replication with templates, and deliver results of comparable quality. The principle contingencies affecting the relative performance of the two methods are identified. We also point out that replication efforts can be a source or incubator, as well as an application area, for dynamic capabilities in an organization. We briefly suggest what the results may mean for theories of knowledge-based competition.
#0514 (PDF)
Richard Day
Microeconomic Foundations for Macroeconomic Structure
The models used in economic theory, though necessarily abstract, should be consistent with the nature of decision making behavior. A formal metaphor of individual behavior as a continuous flow indicates certain requirements that theories of consumer, producer, and economywide behavior should exhibit. A family of discrete time, recursive optimizing models is suggested as the appropriate building block for further developing dynamic economic theory.
#0513 (PDF)
B. Loasby
Entrepreneurship, Evolution and the Human Mind
Schumpeterian 'development from within' requires imagination, skill and motivation; so does Cattaneo's 'psychology of wealth'. Neither can be encompassed by models that rely on deductive rationality, but are twin products of Knightian uncertainty, where the absence of demonstrably correct procedures allows individuals to create domain-limited mental structures. The human mind (as studied by Smith, Marshall and Hayek), is a product of biological evolution which supports the evolution of knowledge and of economic systems. These are non-biological processes; both require (fallible) bounds to uncertainty, which are provided by (evolving) formal and informal organisation, including institutions.
O. Sorenson, J. Singh, L. Fleming
Science, social networks and spillovers
Previous empirical research has established that science appears to stimulate the widespread diffusion of knowledge. The exact mechanism through which science catalyzes knowledge flow, however, remains somewhat ambiguous. This paper investigates whether the observed knowledge diffusion associated with science-based innovation genuinely stems from the norm of openness and incentives for publication, or whether it arises as an artifact of scientists having more dispersed social networks that facilitate the dissemination of tacit knowledge. Our findings support the former possibility: We use patent citation patterns to track knowledge flows, and find that science-based innovations diffuse more widely even after controlling for the underlying social networks of researchers as measured using data on prior collaborations.

published in: Industry & Innovation, 14: 219-238 (2007)
W. Ruprecht
From Carl Menger's Theory of Goods to an Evolutionary Approach to Consumer Behaviour
A characteristic feature of economic development is the ever changing structure of consumption patterns. Reducing the explanation of this phenomenon to changing prices, finally caused by changes in the availability of goods (or characteristics), would neglect a major force driving this change, i.e. the variation of consumer wants and consumer knowledge. The present paper aims at sketching an evolutionary framework for the analysis of consumer behaviour that takes account of these features. For this purpose, Carl Menger's theory of goods is taken as a starting point. Whereas economists after the 'marginalistic revolution' were almost exclusively concerned with the determinants of exchange value and developing price theory, Menger puts as much emphasis on the user value as on the exchange value. Regarding the way of how user value changes a connection between Menger's 19th century theory of goods and 20th century learning theories is established. The problem of how to get from individual learning processes to aggregate consumption patterns is approached by recollecting the genetic underpinnings of human learning and its contingency on certain physical and social conditions. Taking into account that these conditions are dynamic, the presented approach allows interpreting collective learning processes as historical events and makes them fruitful for the analysis of economic change.

published in: Marina Bianchi (ed.) The Evolution of Consumption: Theories and Practices (Advances in Austrian Economics, 2007, Volume 10), Emerald Group Publishing Limited, pp.3-29.
U. Witt
Firms as Realizations of Entrepreneurial Visions
In the debate on why firms exist, the question of who chooses between firms and markets and on what basis is rarely addressed. This paper argues that the choice is a core element of the entrepreneurial pursuit of visions or conceptions of business opportunities. To successfully organize resources into the envisioned businesses – be it via firms or markets – resource owners must be coordinated on the entrepreneur's conception of the business and be motivated to perform properly. To solve the dual problem, the organizational form of the firm offers the entrepreneur unique advantages not feasible under the organizational form of markets.

published in: Journal of Management Studies, 44 (7), 2007, 1125-1140.
T. Broekel, T. Brenner
Local Factors and Innovativeness – An Empirical Analysis of German Patents for Five Industries
A growing body of work emphasizes the role that the spatial component plays in the innovation process. These perspectives brought the region's infrastructure and its endowment with crucial factors into the focus of research. Given that these factors do significantly influence the innovativeness of local firms, it is important to identify precisely which regional characteristics matter. The aim of this paper is to identify a number of key influences out of a multitude of structural factors that are thought to influence the firm's innovation activity. We examine more than eighty variables that approximate the financial, geographical and social-economic factor endowment of a region. The variables are tested with a linear and log - linear model. The two staged procedure examines the variable's bivariate correlation with patent data of five industries. Based on these outcomes multivariate regression models are applied in the second stage. The results for the different models are compared and their advantages and disadvantages are discussed. We find a strong impact of economic agglomeration, extramural science institutions and human capital. In the case of human capital, especially the graduates at the technical colleges are collocated with high regional innovativeness. Furthermore, significant differences are observed for the five industries and for using the two models.

published as: "Regional Factors and Innovativeness - An Empirical Analysis of Four German Industries", in: The Annals of Regional Science, 2011, Volume 47, Number 1, 169-194, DOI: 10.1007/s00168-009-0364-x.
G. Buenstorf, S. Klepper
Heritage and Agglomeration: The Akron Tire Cluster Revisited
We use new data on the location and background of entrants into the U.S. tire industry to analyze the factors that caused the industry to be so regionally concentrated around Akron, Ohio, a small city with no particular advantages for tire production. We analyze the states where firms entered and for the Ohio entrants the counties where they originated and entered, and we conduct various analyses of how proximity to other tire firms and to demanders affected the longevity of tire producers. We also examine how the heritage of the Ohio entrants influenced their longevity. Our findings suggest that the Akron tire cluster grew primarily through a process of organizational reproduction and heredity rather than through agglomeration economies, as has been commonly posited by scholars of the industry.

published in: The Economic Journal, 2009, 119 (537), 705-733. DOI: 10.1111/j.1468-0297.2009.02216.x.
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U. Witt
From Sensory to Positivist Utilitarianism and Back - The Rehabilitation of Naturalistic Conjectures in the Theory of Demand
Demand theory grew out of the revision of utilitarianism. The original, Benthamite program – based on a naturalistic, hedonic interpretation of behavior – was replaced by an abstract, subjectivist approach, a motivational mechanics. The implications – expressed exclusively in observable quantities, prices, and incomes – were developed in demand theory. The paper discusses major steps and consequences of the revision together with more recent partial revocations and attempts at reintroducing a naturalistic interpretation. The latter can be enhanced, it is argued, by integrating the (non-utilitarian) theory of wants, a long-standing, but currently much neglected, source of empirical reflections on the motivations of economic behavior.
R. Joosten
A small Fish War: an example with frequency-dependent stage payoffs.
Two agents possess the fishing rights to a lake. Each period they have two options, to catch without restraint, e.g., to use a fine-mazed net, or to catch with some restraint, e.g., to use a wide-mazed net. The use of a fine-mazed net always yields a higher immediate catch than the alternative. The present catches depend on the behavior of the agents in the past. The more often the agents have used the fine-mazed net in the past, the lower the present catches are independent from the type of nets being used. We determine feasible rewards and provide (subgame perfect) equilibria for the limiting average reward criterion using methods inspired by the repeated-games literature. Our analysis shows that a 'tragedy of the commons' can be averted, as sustainable Pareto-efficient outcomes can be supported by subgame perfect equilibria.

published as: "Small Fish Wars: A new class of dynamic fishery-management games" in: ICFAI J Managerial Economics 5, 2007, pp. 17-30.
E. Stam, E. Garnsey
New Firms Evolving in the Knowledge Economy; problems and solutions around turning points.
This paper explores and explains the emergence and growth of new firms in the knowledge economy. The resource-based view, capabilities approach, and evolutionary economics are used as a foundation for a developmental approach. The development of the firm is conceptualized in terms of processes that include opportunity recognition, resource mobilization, resource generation and resource accumulation, which lead to the development of competences and capital in a base made up of productive, commercial and financial resources. Problems originating within or outside the firm may deplete the productive, commercial and asset base, leading to turning points in the life course of these firms. These have negative consequences when problems are not solved, but positive consequences when they lead to new solutions and the development of new competence. The empirical study shows that even in an elite sample of young fast-growing firms, most firms face turning points in their life course, and thus do not grow in a continuous way. The study shows that quantitative growth indicators do not always reveal growth problems that have been faced by new firms. Some problems do not negatively affect the employment growth of the firm, and other problems are solved before growth stagnates. The qualitative analysis shows that young firms are almost always in disequilibrium: there is almost never a perfect match between the constituents of their resource base, between input resources and requirements for expansion. This explains why continuous growth is so unlikely. Although every firm seems to grow in a unique manner, there is evidence for the presence of a limited set of necessary mechanisms for the growth of (new) firms, which work out in particular ways given the specific context and history of these firms.

published in: Dolfsma, W. & Soete, L. (ed.), Understanding the Dynamics of a Knowledge Economy, Cheltenham: Edward ElgarPubl., 2006, pp. 102-128.
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U. Witt, C. Zellner
Knowledge-based Entrepreneurship: The Organizational Side of Technology Commercialization
New knowledge with commercial potential is continually created in academic institutions. How is it turned into economically valuable businesses? This paper argues that the transfer is an entrepreneurial process. To understand this, the actions and the constraints characteristic for the entrepreneurial reshaping of the division of labor must be recognized. In the case of knowledge-based entrepreneurship, specific constraints result from the peculiarities of scientific knowledge – epitomized by contrasting tacit and encoded knowledge. Scientifically trained labor is required for transferring both forms of knowledge. However, the mode of transfer differs crucially and shapes the organizational form of commercializing new scientific knowledge.
L. Andreozzi
Hayek Reads the Literature on the Emergence of Norms
Hayek's approach to cultural and institutional evolution has been frequently criticized because it is explicitly based on the controversial notion of (cultural) group selection. In this paper this criticism is rejected on the basis of recent works on biological and cultural evolution. The paper's main contention is that Hayek employed group selection as a tool for the explanation of selection among several equilibria, and not as a vehicle for the emergence of out of equilibrium behavior (i.e. altruism). The paper shows that Hayek's ideas foreshadowed some of the most promising developments in the current literature on the emergence of norms.

published in: Constitutional Political Economy, Volume 16, Number 3, 227-247, DOI: 10.1007/s10602-005-2832-3.
G. Buenstorf
How Useful Is Universal Darwinism as a Framework to Study Competition and Industrial Evolution?
The adequate role of Darwinist concepts in evolutionary economics has long been a contentious issue. The controversy has recently been rekindled and modified by the position of "Universal Darwinism", most prominently favored by Geoffrey Hodgson and Thorbjørn Knudsen. They argue that the ontology of all evolutionary systems accords to the basic Darwinist scheme of variation, selection and inheritance. This paper focuses on the emerging application of the Universal Darwinist framework to the analysis of market competition and industrial evolution and gauges its usefulness for organizing an evolutionary approach to industrial economics. Drawing on both a theoretical discussion and recent empirical findings, it argues that selection and inheritance concepts narrowly construed after the biological example are of limited help in studying markets and industries. As an alternative to the 'top-down' approach of Universal Darwinism, 'bottom-up' causal theories are suggested that explain how the interplay of descent, experience and learning shapes the competitive performance of firms in the evolution of industries.

published as: "How useful is generalized Darwinism as a framework to study competition and industrial evolution?" in: Journal of Evolutionary Economics, Vol. 16 (5), 2006, 511-527.
C. Cordes, C. Schubert
Toward a Naturalistic Foundation of the Social Contract
This paper delivers a step toward a naturalistic foundation of the social contract. While mainstream social contract theory is based on an original position model that is defined in an aprioristic way, we endogenize its key elements, i.e., develop them out of the individuals' moral common sense. To this end, the biological and social basis of moral intuitions and empathy are explored. In this context, a key adaptation during evolution was the one that enabled humans to understand conspecifics as intentional agents. Since these aspects of behavior are considered to be an exaptation, they are not amenable to direct genetic explanations or to rationality-based approaches.

published in: Constitutional Political Economy 18 (2007), 35-62.

Papers 2004 [back to top] Top

G. Hodgson, T. Knudsen
The Nature and Units of Social Selection.
On the basis of the technical definition of selection developed by George Price (1995), we describe two forms of selection that commonly occur at the social level, subset selection and generative selection. Both forms of selection are abstract and general, and therefore also incomplete; both leave aside the question of explaining the selection criterion and why entities possess stable traits. However, an important difference between the two kinds of selection is that generative selection can accommodate an explanation of how new variation is created, while subset selection cannot. An evolutionary process involving repeated cycles of generative selection can, in principle, continue indefinitely because imperfect replication generates new variation along the way, whereas subset selection reduces variation and eventually grinds to a halt. Even if the two kinds of selection examined here are very different, they share a number of features. First, neither subset selection nor generative selection implies improvement. Neither kind of selection necessarily lead to efficiency or imply systematic outcomes. Second, both subset selection and generative selection can lead to extremely rapid effects in a social population. Third, in the social domain, both generative selection and subset selection involve choice and preference. Neither form of selection necessarily excludes intentionality. In concluding the article, we single out a challenge for future research in identifying the role of various units of culture in selection processes and the multiple levels at which social selection processes take place.

published in: Journal of Evolutionary Economics, Vol. 16 (5), 2006, 477-489.
J. Mokyr
Useful Knowledge as an Evolving System: the view from Economic History.
The process of modern growth is different from the kind of growth experienced in Europe and the Orient before 1800 in that it is sustained. Whereas in the premodern past, growth spurts would always run into negative feedback, no such ceiling seems to have been limiting the economic expansion of the past two centuries. The enigma of modern growth has led to a great deal of modeling and speculation amongst economists interested in the topic. One important strand in the literature has been that the Malthusian models that provided much of the negative feedback before 1800, have been short-circuited by the desire and ability of a growing number of individuals to reduce their fertility. Another has been institutional change, which has reduced opportunistic behavior and uncertainty. What has not been stressed enough is that the new technology was made possible by ever increasing "useful knowledge" as Kuznets called it. The sources of this growth in knowledge, surprisingly, have not been fully analyzed. How does "useful knowledge" emerge and develop? Why does it occur in one society and not another, at one time, and why does it take the form it does? This paper examines the details of how new knowledge is created by various combinations of luck, trial and error, inference, and experiment. To analyze the history of useful knowledge, an evolutionary framework to the economic history of useful knowledge is employed.

published in: Lawrence E. Blume and Steven N. Durlauf (eds.), The Economy As an Evolving Complex System III, Oxford University Press, 2005
R. R. Nelson
Evolutionary Theories of Cultural Change: An Empirical Perspective
The last quarter century has seen a renaissance of the proposal that the processes Darwin put forth as driving biological evolution also provide a plausible theoretical framework for analysis of the evolution of human culture. Modern proponents of the idea that human culture evolves through broad Darwinian processes, involving variation and selective retention, of course recognize that the idea is not a new one. There is no doubt, however, that in recent years the idea has become particularly fashionable among scholars. Many advocates of the position use the term "Universal Darwinism", generally believed to have been coined by Richard Dawkins (1983), to denote the theory they are trying to develop. Because it is better known, in what follows I will use that term to denote the broad idea, which I endorse, rather adopting here David Hull's term "General Selection Processes" (1988) to denote the class of dynamic mechanisms one can see operative in particular form in both biological and cultural change. However, I share with Hull the belief that many of the recent attempts to extend Darwinian theory to human culture have stayed too close to biology, and indeed a narrow perspective on biology. In particular, my concern here is that, while a general theory of evolution driven by variation and selective retention would appear highly relevant to analysis of changes over time in many aspects of human culture, some of the specific features that we now know are involved in the evolution of species, particularly entities like genes, and mechanisms like inclusive fitness, may not carry over easily.

published as: "Evolutionary social science and universal Darwinism" in: Journal of Evolutionary Economics, Vol. 16 (5), 2006, 491-510.
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J. S. Metcalfe
Accounting for Evolution: An Assessment of the Population Method
Growth dynamics and structural change are the two central features of variation / selection processes within populations. This paper explores them in terms of three themes, or sets of accounts, namely Logistic Growth Accounting, Competition Accounting and the Price Theorem. The accounting concepts have in common a concern with 'population thinking' and are essential elements in the study of economic development interpreted as the transformation of initial populations of activities into new kinds of populations. Development can be uncovered at many levels in an economic system, for example in the competitive process at the level of industries, sectors and markets. Business rivalry, underpinned by differential innovative activity, is the basis of the differential survival and growth of competing economic activities and the strategies deployed to create sustainable differences in competitive selection characteristics are at the core of the capitalist dynamic interpreted as an adaptive, evolutionary process. This kind of evolutionary argument is necessarily concerned with growth rate dynamics and the explanation of the diversity of growth rates across entities in a population. The accounting relationships presented are a prelude to deeper causal explanations of evolution in institutions, economies and perhaps in knowledge itself.
J. Vromen
Routines, genes and program-based behaviour
It is argued that the 'routines as genes' analogy is misleading in several respects. Neither genes nor routines program behaviour, if this is taken to involve, first, that they determine behaviour and, second, that they do so in a way that excludes conscious, deliberate choice. On a proper understanding of 'gene' and 'routine', knowledge of genes and routines falls far short of predicting behaviour. Furthermore, conscious, deliberate choice is not ruled out when genes or routines are operating. There is a sense in which it can be maintained that genes are (or act as) programs and that individual behaviour is based on them. Such programs might display considerable stability, but their causal impact on behaviour is so remote and indirect that knowing them has little predictive power. It might be possible to identify programs also at levels of organization higher than that of genes that have greater predictive power, but such programs are likely to be unstable over time. On a non-inflationary understanding of 'routines', individual organization members can be viewed as programs on which the smooth functioning of routines is based. This is a far cry from the claim that routines determine firm behaviour, let alone from the claim that they are key success variables in explaining how well (in terms of profitability) firms perform.

published in: Journal of Evolutionary Economics, Vol. 16 (5), 2006, 543-560.
A. Field
Why Multilevel Selection Matters
In spite of its checkered intellectual history, and in spite of the myriad proposals of alternative models that claim to account for the broad range of human behavior and to dispense with the need for selection above the organism level, a multilevel selection framework remains the only coherent means of accounting for the persistence and spread of behavioral inclinations which, at least upon first appearance at low frequency, would have been biologically altruistic. This argument is advanced on three tracks: through a review of experimental and observational evidence inconsistent with a narrow version of rational choice theory, through a critique of models or explanations purporting to account for prosocial behavior through other means, and via elaboration of the mechanisms, plausibility, and intellectual history of group selection.

published in: Journal of Bioeconomics, 2008, Volume 10, Number 3, 203-238, DOI: 10.1007/s10818-007-9018-1.
P. Windrum
Heterogeneous preferences and new innovation cycles in mature industries: the camera industry 1955-1974.
The paper examines the innovation dynamics of the mature camera market between 1955 and 1974. This highlights the importance of heterogeneous preferences in determining industry structure. By recognising and accommodating consumer heterogeneity, new firms engaged in radical product and process innovation and overcame the first-mover advantages of dominant firms. The case raises important issues for our understanding of industry life cycles. First, a number of innovation cycles are possible over the life cycle. Second, new rounds of entry, exist and market shake-out can occur, with new, innovative entrants displacing old firms. If the new firms are in developing countries then a shift in global production occurs. Third, a basic tenet of Porterian competitive advantage is overturned because success is based on innovation not wage-cost advantages. Fourth, market structure can change, the industry dividing into a number of market niches that contain distinct user groups. Fifth, incremental modular innovations may be adopted by some user groups but not by others. Consequently, incremental product innovations may be adopted in low-priced goods but not in high-priced goods.

published as: Heterogeneous preferences and new innovation cycles in mature industries: the amateur camera industry 1955–1974, Industrial and Corporate Change 14 (2005), 1043-1074.
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R. Joosten
Strategic Interaction and Externalities: FD-games and pollution.
To analyze strategic interaction which may induce externalities, we designed Bathroom Games with frequency-dependent stage payoffs. Two people regularly use a bathroom, before leaving they can either clean up the mess made, or not. Cleaning up involves an effort, so this option always gives a lower immediate utility than not cleaning up. The immediate utility of using the bathroom depends on its condition: the cleaner it is, the higher the utility. The pollution at a certain point in time depends on how often the players did not clean up in the past. Furthermore, as the bathroom's condition deteriorates, cleaning up becomes more burdensome, leading to increasing disutilities. We follow the analysis of repeated games and find that if the agents are sufficiently patient, individually-rational rewards can be supported by (subgame perfect) equilibria involving threats. In almost every such equilibrium, the bathroom is cleaned up regularly.
T. Brenner
Agent Learning Representation - Advice in Modelling Economic Learning
This paper presents an overview on the existing learning models in the economic literature. Furthermore, it discusses which of these models should be used under what circumstances and how adequate learning models can be chosen in simulation approaches. It gives advice for getting along with the many models existing and picking the right one for the own application.

published in: L. Tesfatsion and K.L. Judd (eds.). Handbook of Computational Economics, Vol. 2. Elsevier Science, 2006, 895-947.
C. Cordes
Darwinism in Economics: From Analogy to Continuity
Currently there is an ongoing discussion about how Darwinian concepts should be harnessed to further develop economic theory. Two approaches to this question, Universal Darwinism and the continuity hypothesis, are presented in this paper. It is shown whether abstract principles can be derived from Darwin's explanatory model of biological evolution that can be applied to cultural evolution. Furthermore, the relation of the ontological basis of biological and cultural evolution is clarified. Some examples illustrate the respective potential of the two approaches to serve as a starting-point for theory development.

published in: Journal of Evolutionary Economics, Vol. 16 (5), 2006, 529-541.
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F. L. Pryor
Economic Systems of OECD Nations: Impact and Evolution
This essay argues that economic systems should be defined in terms of clusters of complementary institutions. To show how such an approach can be carried out, I use a cluster analysis technique and data on forty different economic institutions in OECD nations to isolate four quite different economic systems. After specifying the most important institutional clusters in each system, I then examine what impact these economic systems have on various indicators of economic performance. Finally, I show how such an approach allows particular evolutionary patterns of the systems to be analyzed.
C. Sartorius
Second-order sustainability – conditions for sustainable technology development in a dynamic environment
Innovations can be important means to the achievement of improved sustainability. Due to path dependencies, however, the transition from an existing technological trajectory to a more sustainable one is often impeded by significant barriers. These barriers themselves are subject to substantial change over time. Accordingly, periods of stability can be distinguished from periods of instability when a new trajectory can be reached more easily. Sustainable innovations often rely on governmental regulation and the economic burden arising from regulation will be lower in periods of instability. Moreover, innovations are generally associated with fundamental uncertainty such that it becomes impossible to predict the long-run consequences of specific innovations. Under these circumstances, it is essential to facilitate the change between trajectories. The general capability to change from less to more sustainable technological trajectories, or second-order sustainability, is therefore a precondition for achieving (first-order) sustainability. A number of factors (and corresponding indicators) from the techno-economic, political, and socio-cultural sphere are identified that help in judging whether, and possibly when, the incumbent industry is sufficiently destabilized and the political system rendered sufficiently favorable to the new, more sustainable technology to make a transition feasible.

published as: Second-order sustainability – conditions for the development of sustainable innovations in a dynamic environment, Ecological Economics, 2006, Vol. 58, 268-286.
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T. Brenner, C. Cordes
The autocatalytic character of the growth of production knowledge: What role does human labor play?
This paper analyzes how the qualitative change in human labor occurs in mutual dependence with the advancement of the epistemic base of technology. Historically, a recurrent pattern can be identified: humans learned to successively transfer labor qualities to machines. The subsequent release of parts of the workforce from performing this labor enabled them to spend this spare time in the search for further technical innovations, i.e., the generation and application of ever-more knowledge. A model examines the autocatalytic relationship between the production of commodities and knowledge. The driving forces of these processes and the mechanisms that limit them are analyzed.
C. Schubert
Hayek and the Evolution of Designed Institutions: a Critical Assessment
While Evolutionary Economics has devoted much attention to the attempt to explain the evolution of institutions that emerge spontaneously, the genesis, diffusion and evaluation of consciously designed institutions has largely been neglected. This paper tries to show (i) how an evolutionary approach to this problem could look like and (ii) in what way Friedrich A. v. Hayek's work can contribute to it. Three aspects are identified as playing a key role in this respect: first, Hayek's positive theory of both the legislative and the judicial law-making process; second, his normative theory, centered on the instrumental value of individual freedom for maintaining the epistemic superiority of spontaneous social orders; and third, his concept of democracy, based on a dynamic deliberation (instead of a static aggregation) view on individual preferences. While there are more or less wide gaps in all three original accounts, there are ways to fill them in an arguably "Hayekian" way and to combine the different threads to a conceptual basis for a Hayekian political economy.

published in: J. Backhaus (ed.), Entrepreneurship, Money and Coordination, Cheltenham: E. Elgar, 2005, 107-130.
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C. Werker, T. Brenner
Empirical Calibration of Simulation Models
This paper discusses how the results of simulation models can be made more reliable and the method of simulating therefore more widely applicable. We suggested to calibrate simulation models empirically and developed a methodology based on Critical Realism in order to so. We suggested combining the procedures of two strands of literature: the empirical underpinning of the assumptions (like in microsimulations) and the empirical check of the implications (like in Bayesian inference). Both these strands of literature are mainly concerned with predicting future developments. We, instead, aim to infer statements about causal relations and characteristics of a set of systems or dynamics, such as, e.g., the development of an industry, that have a general validity for this set of systems or dynamics. In other words, instead of deriving probabilistic predictions of the future and statements of the current situation and dynamics of one single system we developed a methodology to gain general statements about the features of systems and dynamics.
M. Peneder
Tracing Empirical Trails of Schumpeterian Development
Schumpeterian development is characterised by the simultaneous interplay of growth and qualitative transformations of the economic system. At the sectoral level, such qualitative transformations become manifest as variations in the sectoral composition of production. Following the implementation of Harberger's method of visualising the impact of differential productivity growth, dynamic panel estimations are applied to a standard growth model modified to include specific structural variables for both the manufacturing and the services sectors. Covering 28 countries over the period between 1990 and 2000, the results give empirical substance to the evolutionary emphasis on Schumpeterian development as opposed to mere aggregate growth.

published in: Cantner, U., E. Dinopoulos, R.F. Lanzilotti (eds), Entrepreneurship, the New Economy and Public Policy. Schumpeterian Perspectives, Springer, 2005, 203-221, DOI: 10.1007/3-540-26994-0_12.
D. Helbing, U. Witt, S. Lämmer, T. Brenner
Network-Induced Oscillatory Behavior in Material Flow Networks and Business Cycles
Network theory is rapidly changing our understanding of complex systems, but the relevance of topological features for the dynamic behavior of metabolic networks, food webs, production systems,information networks, or cascade failures of power grids remains to be explored. Based on a simple model of supply networks, we offer an interpretation of instabilities and oscillations observed in biological, ecological, economic, and engineering systems. We find that most supply networks display damped oscillations, even when their units - and linear chains of these units - behave in a non-oscillatory way. Moreover, networks of damped oscillators tend to produce growing oscillations. This surprising behavior offers, for example, a new interpretation of business cycles and of oscillating or pulsating processes.The network structure of material flows itself turns out to be a source of instability, and cyclical variations are an inherent feature of decentralized adjustments.

published in: Physical Review E 70, 056118, 2004, 1-6.
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G. Buenstorf, S. Klepper
The Origin and Location of Entrants in the Evolution of the U.S. Tire Industry
During its early and formative years, the U.S. tire industry was heavily concentrated around Akron, Ohio. We test the extent to which entrants in Ohio were attracted to the Akron area by agglomeration benefits, contributing to a self-reinforcing process envisioned in many modern theories of geography. We trace the geographic and intellectual heritage of the Ohio entrants and analyze the factors underlying their creation and location at the county level. Our findings suggest it was the creation of entrants, largely spurred by the supply of entrepreneurs, and not the attraction of entrants to the Akron area that fueled the agglomeration of the industry there.
U.-M. Niederle
From Possession to Property: Preferences and the Role of Culture
The paper investigates the interplay between the institutions of law and property and innate propensities towards possession. The questions to be answered are: How do property relations emerge in historical-anthropological terms in contrast to the well-known constitutional perspective and what role do preferences - as human cognitive and behavioural dispositions - play in this process? The paper conjectures that possessiveness towards specific objects together with a primary attitude toward first rules of law, that is some rule preference and commitment, shape patterns and outcomes of property relations. More complex structures of property relations have developed together with technological advances. The differences in property relations across different societies result partly from diverse ecological conditions and partly from culturally transmitted traditions.

published in: J. Finch, M. Orillard (eds.): Complexity and the Economy, Cheltenham: Edward Elgar, 2005, pp. 77-104.
U. Witt
On Novelty and Heterogeneity
Novelty and heterogeneity are two closely related issues. Heterogeneity is not only a result of the emergence of novelty which creates variety in any evolving system. Heterogeneous elements are also required as inputs for the recombination processes underlying the generation of novelty. However, while heterogeneity figures prominently in computational and agent-based economics and in complex adaptive systems analysis, novelty and its emergence are neglected topics. In order to make progress with the latter the paper starts with a discussion of how novelty is being generated both in the case of genetic novelty and that of mental novelty. For the case of mental novelty it is then shown that the bottleneck in our understanding of novelty is not the generation procedure proper, but rather the procedure by which our mind evaluates or interprets the outcome. On the basis of this distinction it is briefly sketched how, for different forms of novelty, the degree of novelty may be rank-ordered and how the limits to predictability in the context of novelty vary with that degree.

published in: T. Lux, S. Reitz, E. Samanidou (eds.): Nonlinear Dynamics and Heterogeneous Interacting Agents, Heidelberg: Springer, 2005, pp. 123-138.
E. Ostrom
The Working Parts of Rules and How They May Evolve Over Time
Drawing on extensive research related to successful and unsuccessful efforts to govern common-pool resources, I wish to address what I consider to be the next important step in our theoretical understanding of complex settings. I address how we can identify the working parts of rules. It is difficult to study the evolution of institutions without a clear language for describing and analyzing the underlying working parts creating markets, governments at all levels, private property, and structures inside individual firms. Thus, this paper identifies the rules underlying institutional games so that we can study their evolution.

published as: "The Complexity of Rules and How They May Evolve Over Time", in: C. Schubert, G. v. Wangenheim (eds.): Evolution and Design of Institutions, Oxford: Routledge, 2006, pp. 100-122
F. Parisi, G. v. Wangenheim
Legislation and Countervailing Effects from Social Norms
Human behavior is influenced both by internal norms or values ("what people think to be just behavior") and exogenous restrictions including legal sanctions. In the paper we study the interaction between these legal and extralegal forces and highlight the possibility of a countervailing effect of norms and individual in the face of changes in the legal environment. Building on the stylized fact that people's individual values are partly static and partly subject to change overtime, we consider these social and legal forces as two main factors that contribute to the change in individual values. Legal innovation that departs from current values may lead to private enforcement norms or civil disobedience. Through private enforcement of expressive laws and through civil disobedience, individuals reveal their approbation or disapproval of laws to other individuals. This may lead to a hysteresis effect on individual values that may have a reinforcing or countervailing effect on the legal innovation. Our model of countervailing norms complements the existing literature on expressive law by showing conditions under which the equilibrium behavior may move in the opposite direction from that intended by the law. Our model studies the dynamics of such problem and unveils several important predictions and practical implications for the design of law.

published in: C. Schubert, G. v. Wangenheim (eds.): Evolution and Design of Institutions, Oxford, Routledge, 2006, pp. 25-55.
V. J. Vanberg
Human Intentionality and Design In Cultural Evolution
The purpose of this paper is to take a closer look at the relation between human intentionality and design on the one side and the "blind" forces of evolution on the other. Specifically, I discuss two issues that Ulrich Witt has raised in recent publications, namely, first, the issue of whether the role that human intelligence and intentionality play in man-made or cultural evolution requires us to adopt a non-Darwinian concept of evolution, and, second, the issue of what the fact that cultural evolution is man-made implies for our capacity to "control" the evolutionary process and for our "responsibility" with regard to its overall outcomes.

published in: C. Schubert, G. v. Wangenheim (eds.): Evolution and Design of Institutions, Oxford: Routledge, 2006, pp. 197-212.
C. Cordes
Veblen's 'Instinct of Workmanship', its Cognitive Foundations and Some Implications for Economic Theory
This paper delivers some findings from the present-day cognitive sciences on man's cognitive dispositions that support aspects of Veblen's "nstinct of workmanship," which is an essential starting point of his evolutionary theory of institutional change. These cognitive dispositions partly govern which information will be subject to profound contemplation and be easy to disseminate within a population. Furthermore, they may give rise to a bias in human creativity. As a result, some cognitive foundations of the "nstinct of workmanship" may induce a general direction in long-term economic development by influencing the continuous accretion of knowledge during cultural evolution.

published in: Journal of Economic Issues, Vol. 39 (1), 2005, 1-20.

Papers 2003 [back to top] Top

G. Buenstorf, P. Murmann
Ernst Abbe's Scientific Management: Theoretical Insights from a 19th Century Dynamic Capabilities Approach
'Scientific management' is the label Frederick Taylor attached to the system of management devised by him. In this article we present our discovery of very different 'scientific' management principles that were developed roughly concurrently with Taylorism by German physicist Ernst Abbe, then owner and managing director of the Carl Zeiss optical instruments company. Abbe's management principles as well as the social philosophy underlying them are accessible to present-day theorists because he laid them down both in the statutes of a foundation he founded and in an extensive commentary on the statutes. These original accounts offer a remarkable opportunity to enrich our current understanding of how managers can create and recreate firm capabilities that allow firms to enjoy a long-term leadership position. Abbe develops an early account for managing a science-based firm and securing its long-term competitiveness, giving detailed prescriptions with regard to the kind and scope of firm activities, its organizational setup, and its labor relations. Abbe's management principles exhibit striking parallels to important contemporary theories of organization such as the Resource-Based Theory of the Firm and the related Dynamic Capabilities Theory of the Firm, and are even today able to indicate issues that warrant further theoretical elaboration. In this article, we give an outline of Abbe's thought, highlight some of its most characteristic features, and set them into relation to present-day management theory.

published in: Industrial and Corporate Change, 14 (2005): 543-578.
C. Schubert
A Contractarian View on Cultural Evolution
Evolutionary Economics still lacks a well-developed normative branch, i.e., a concept of socio-economic or cultural 'progress' that allows to derive social welfare judgments on alternative economic processes and states and thereby on (political or legal) institutional design. This paper develops an elementary individualistic contractarian framework, based in particular on the work of the political philosopher John Rawls, that may serve as a first step towards such a concept. The hypothesis will be developed that the Rawlsian approach, if properly interpreted, is compatible with an evolutionary 'world-view'. This means in particular that it can be made weather-proof against a general 'Humean' and a more specific 'Hayekian' objection to the social contract methodology. In that case it can serve as a basis which may eventually allow to develop well-founded hypothetical statements about the relative 'goodness' of alternative economic processes and states, defined from the viewpoint of the individuals concerned. In the end, a normative theory could represent one pillar of an overarching evolutionary theory of economic policy making, in addition to its positive and its instrumental analysis.

published in: C. Schubert, G. v. Wangenheim (eds.): Evolution and Design of Institutions, London: Routledge, 2006, pp. 149-179.
C. Cordes
The Human Adaptation for Culture and its Behavioral Implications
During phylogeny, man adapted for culture in ways other primates did not. This key adaptation is the one that enabled humans to understand other individuals as intentional agents like the self. This genetic event opened the way for new and powerful cultural processes but did not specify the detailed outcomes of behavior we see today. It just provided the basis for cultural evolution that, with no further genetic events, enabled the distinctive characteristics of human cognition. These capabilities can explain the motivational underpinnings of a variety of human inclinations and behaviors, such as a tendency toward cooperation, altruism, or fairness.

published in: Journal of Bioeconomics, Vol. 6 (2), 2004, 143-163.
J. Lambooy
The Role of Intermediate Structures and Regional Context for the Evolution of Knowledge Networks and Structural Change
The importance of knowledge - more in particular of its creation and diffusion - for (regional) economic development is widely acknowledged. Knowledge is one of the most important sources of economic development. With an evolutionary perspective, the process of knowledge diffusion can be investigated as an emergent process of the formation of networks in a complex context. The concept of the Regional Innovation System (RIS) offers a possible framework to connect the generation and diffusion of knowledge with regional economic growth. For regional economic development to benefit from the advantages of proximity requires the continuous renewal of networks and interactive learning. Human action is a learning process, susceptible to the influences of time, place and human contacts.
In the process of diffusion it is necessary to give more attention to the specific function of the 'nodes' in networks. These nodes can be distinguished in various kinds of 'sources' of knowledge (like universities, laboratories of large corporations, or small innovative firms) and 'destinations' (firms or other organisations). Quite often there are intermediate persons or structures acting in the transmission process between sources and destinations. These can influence the content and the configuration of the 'message', the transferred knowledge. Personal and profit motives, but also structural properties like distance and culture (language, religion) influence both the process and the outcome.
The emergence of these networks and the intermediate structures can be viewed as an evolutionary process. The complexity of the multiplicity of relations is related to those contextual conditions of geographical, cultural and organisational proximity that influence both the efficiency and the effectiveness of knowledge transfers. Governments have only a limited power to influence this evolutionary process.
T. Brenner, N. J. Vriend
On the Behavior of Proposers in Ultimatum Games
We demonstrate that one should not expect convergence of the proposals to the subgame perfect Nash equilibrium offer in standard ultimatum games. First, imposing strict experimental control of the behavior of the receiving players and focusing on the behavior of the proposers, we show experimentally that proposers do not learn to make the expected-payoff- maximizing offer. Second, considering a range of learning theories (from optimal to boundedly rational), we explain that this is an inherent feature of the learning task faced by the proposers, and we provide some insights into the actual learning behavior of the experimental subjects. This explanation for the lack of convergence to the subgame perfect Nash equilibrium in ultimatum games complements most alternative explanations.

published in: Journal of Economic Behavior & Organization, Vol. 61 (4), 2006, 617-631.
U. Witt
The Evolutionary Perspective on Organizational Change and the Theory of the Firm

published in: K. Dopfer (ed.), The Evolutionary Foundations of Economics, Cambridge: Cambridge University Press, 2005, pp 339-364.
T. Brenner, S. Greif
The Dependence of Innovativeness on the Local Firm Population - An Empirical Study of German Patents

published in: Industry and Innovation, 13 (2006): 21-39.
U. Witt
The Proper Interpretation of 'Evolution' in Economics and the Example of Production Theory
How relevant is the notion of evolution for economics? In view of the paradigmatic influence of Darwinian thought, several recently advocated interpretations are discussed first which rely on Darwinian concepts. As an alternative, a notion of evolution is suggested that is based on a few, abstract, common principles which all domain-specific evolutionary processes share, including those in the economy. A different, ontological question is whether and, if so, how the various domain-specific evolutionary processes are connected. As an answer, an evolutionary continuity hypothesis is postulated and its concrete economic implications are discussed exemplarily for the theory of production.

published as: "On the proper interpretation of 'evolution' in economics and its implications for production theory" Journal of Economic Methodology, 11 (2004): 125-146.
T. Brenner
An Identification of Local Industrial Clusters in Germany
This paper presents a method that allows local industrial clusters to be identified and applies this method to Germany. The method is applied to all 3-digit manufacturing industries in Germany. The results are used in two ways. First, they provide some information about which industries are clustering and which are not. Second, a complete list of all local clusters that existed in Germany in 2001 and are identified by this method is given. The spatial distribution of these local clusters in Germany is discussed in the light of other studies on Germany.

published in: Regional Studies, Vol. 40 (9), 2006, 991-1004.
T. Brenner, P. Murmann
The Use of Simulations in Developing Robust Knowledge about Causal Processes - Methodological Considerations and an Application to Industrial Evolution
The paper develops a simulation method that can be used to develop knowledge inductively and test hypotheses about causal processes in social systems. Combining existing simulation methods in novel ways, it describes in detail the uses and requirements for carrying out history-friendly simulation experiments. The second part of the paper illustrates the value of the methodology by developing inductively information about the precise causal impact of (1) the initial number of organic chemists at the start of the industry (1857) and (2) the responsiveness of the German university system on the German global market share in the synthetic dye industry in 1913.
C. Cordes
Long-term Tendencies in Technological Creativity - A Preference-based Approach
Given the significance of technology in the course of socio-economic evolution, the driving forces behind the continuous accretion of technological knowledge deserve particular attention. This paper suggests a hypothesis about the motivational underpinnings of human technological creativity that is able to explain some long-term developments in human labor and technology. These motivational underpinnings are considered to being similar across human beings. They can therefore be assumed to imply some commonly shared elements of human preferences or wants.

published in: Journal of Evolutionary Economics, Vol. 15 (2), 2005, 149-168.
U. Witt
'Production' in Nature and Production in the Economy - Second Thoughts about Some Basic Economic Concepts
If production means generating output by application of specific inputs, then production is a ubiquitous phenomenon in nature. This observation invites a double comparison. First, physical production processes in nature can be compared to those in the economy. The differences highlight cumulative changes in technology which explain how specific modern forms of human production have become feasible through cultural evolution. Second, such a 'naturalistic' perspective on production can be compared to, and sheds new light on, the remarkably different perspective in economics which interprets production not as physical processes, but as a problem of human social interaction and coordination.

published in: Structural Change and Economic Dynamics, 2005, Vol. 16(2), 165-179.

Papers 2002 [back to top] Top

P. Murmann, K. Frenken
Toward a Systematic Framework for Research on Dominant Designs, Technological Innovations, and Industrial Change
The concept of a dominant design has taken on a quasi-paradigmatic status in analyses of the link between technological and industrial dynamics. A review of the empirical literature reveals a variety of interpretations about some aspects of the phenomenon such as its underlying causal mechanisms and its level of analysis. To stimulate further progress in empirical research on dominant designs, we advocate a standardization of terminology by conceptualizing products as complex artifacts that evolve in the form of a nested hierarchy of technology cycles. Such a nested complex system perspective provides both unambiguous definitions of dominant designs (stable core components that can be stable interfaces) and inclusion of multiple levels of analysis (system, subsystems, components). We introduce the concept of an operational principle and offer a systematic definition of core and peripheral subsystems based on the concept of pleiotropy. We also discuss how the proposed terminological standardization can stimulate cumulative research on dominant designs.
updated version

published in: Research Policy, 2006, Vol. 35, pages 925-952
P. Murmann
The Complex Role of Patents in Creating Technological Competencies: A Cross-National Study of Intellectual Property Right Strategies in the Synthetic Dye Industry, 1850-1914
U. Witt
Generic Features of Evolution and Its Continuity - a Transdisciplinary Perspective
Evolution is thought to occur in many disciplinary domains. Because of the intellectual attraction of the neo-Darwinian theory of evolution, evolutionary processes in other domains are often conceptualized in terms of that theory. However, as explained, such a heuristic strategy is neither necessary nor is it always helpful. An attempt is therefore made to identify generic features of evolution which transcend all domain-specific characteristics. Two concrete features are discussed together with their epistemological, conceptual, and methodological implications. Finally the ontological question is highlighted how non-biological evolutionary theories can be accommodated by the Darwinian world view of the moderns sciences.

published in: THEORIA, Vol. 18 (48), 2003, 273-288.
G. v. Wangenheim
Stability of Equilibria in Enforcement Games with Increasing Marginal Enforcement Costs
U. Witt
Market Opportunity and Organizational Grind - The two Sides of Entrepreneurship
In pursuing profit opportunities, entrepreneurs often use multi-person firms. Since employment contracts leave some discretion to the employees, organizational coherence requires that they are coordinated on the entrepreneurial business conception as their own frame of action. Accordingly, the entrepreneurial reorganization of production and trade implies two different coordinating tasks: the exploitation of market opportunities and the seeing through of the business conception in the firms= daily organizational grind. The former has been center stage in the Austrian school of economics. For the neglected latter task a cognitive theory is suggested which highlights an Austrian, or entrepreneurial, approach to the firm.

published in: Roger Koppl (ed.), Advances in Austrian Economics, Vol 6, 2003, pp. 131-151.
S. Klepper, S. Sleeper
Entry by Spinoffs
Entry by spinoffs from incumbent firms is investigated for the laser industry. A model in which spinoffs exploit knowledge from their parents is constructed to explain the types of firms that spawn spinoffs, the market conditions conducive to spinoffs, and the relationship of spinoffs to their parents. The model is tested using detailed data on all laser entrants from the start of the industry through 1994. Our findings support the basic premise of the model that spinoffs inherit knowledge from their parents that shapes their nature at birth. Implications of our findings for organizational behavior, business strategy, entry and industry evolution, and technological change are discussed.

published in: Management Science 51(8), 2005, 1291-1306.
C. Zellner
The Economic Effects of Basic Research: Evidence for Embodied Knowledge Transfer via Scientists' Migration
The paper argues that a substantial proportion of the social economic benefits from publicly funded basic research is associated with scientists' migration into the commercial sector of the innovation system. Rejecting a reduction of the research process to the propositional knowledge it produces, a set of hypotheses on the value of different types of knowledge is derived. The hypotheses are tested with empirical data obtained from scientists formerly employed by the Max Planck Society, one of the main organisations for basic research in the German innovation system. Findings indicate that rather than applying latest theoretical insights, scientists mainly transfer elements of knowledge that underlie complex problem-solving strategies in basic research. The paper concludes by discussing the implications of the results on science and technology policy.

published in: Research Policy 32 (10), 2003, 1881-1895.
T. Brenner
Innovation and Cooperation During the Emergence of Local Industrial Clusters - An Empirical Study in Germany
This paper studies the dynamics that cause the emergence of local industrial clusters on a general level. Predictions about these dynamics are deduced from theoretical modelling. The predictions are tested with the help of empirical data from Germany. 3-digit manufacturing industries are classified according to their dynamics. It is examined whether certain industrial characteristics are able to predict the type of dynamics that is occurring. It is shown that a high number of process innovations and a high share of regional cooperation with suppliers and public research institutes characterise those industries in which local clusters emerge.

published in: European Planning Studies, Vol. 13 (6), 2005, 921-938.
L. Andreozzi
Network Externalities, Critical Masses and Converters. An Evolutionary Analysis.
Witt (1997) proposes a model of technological adoption in markets characterized by network xternalities in which superior technological standards have smaller critical mass, so that they can easily displace inferior alternatives. This paper builds on his model to show that the critical mass of a given technology depends upon its e.ciency and its compatibility with the existing standard, and hence that more efficient technologies need not have smaller critical masses. Some consequences for the economics of converters and "gateway technologies" are also discussed.

published as: "A note on critical masses, network externalities and converters", International Journal of Industrial Organization, Elsevier, 2004. vol. 22(5), pages 647-653, May.
L. Dudley, J. Moenius
Creative Destruction in International Trade
Two different approaches have been proposed to explain the rise and decline of industries. Schumpeter (1942/1947) argued that creative destruction was a necessary part of innovation. Rybczynski (1955) demonstrated in a two-factor model that an increase in one factor leads to a decrease in output in the sector intensive in the other factor. Here we combine these approaches to show that under endogenous technological change, sectors threatened with decline may be given new life, while others lose their export markets as their products became noncompetitive. Testing this hypothesis with 1970-1992 export data from 14 OECD countries, we find evidence that induced innovation undertaken in response to local factor shortages may reshape international comparative advantage.
L. Dudley, U. Witt
Yesterday's Games: Contingency Learning and the Growth of Public Spending
Between 1890 and 1938, the public share of total spending rose to unprecedented peacetime levels in many Western countries. This development has been explained by either (i) a shift in the demand for public goods or (ii) a restructuring of the state to transfer income. However, neither explanation has been shown to be compatible with individual incentives. Here, we model the rise of public spending as a contingency-learning phenomenon within Schelling's Multi-Person Dilemma. Tests of the resulting propositions with national time series reveal no unit root but a break in trend, a result shown to favor explanation (ii) over(i).

published as: 'Arms and the Man: World War I and the Rise of the Welfare State', in Kyklos 57, 2004, 475-504.
G. Buenstorf
Sequential Production, Modular Techniques and Technological Change
Most economic production models are restricted to relationships between input and output quantities. In the presence of technological change, these models do not capture all relevant information on production processes. As the present paper aims at demonstrating, even a stylized representation of the internal structure of production processes helps to better understand the dynamics of technological change. To this purpose, production processes are interpreted as sequences of operations (techniques) during which the object of production is successively modified. Specifically, the paper investigates how interdependencies between the stages of a technique affect technological change by giving rise to incompatibilities or complementarities. In addition, it is discussed whether the existing literature on modular product designs and decomposable complex systems is helpful to understand the dynamics of production processes. It is argued that decomposable techniques need not be modular and that decomposability itself evolves over time, as it depends on the state of knowledge.

published in: Structural Change and Economic Dynamics, 2005, Vol. 16(2), 221-241.

Papers 2001 [back to top] Top

U. Witt
How Evolutionary is Schumpeter's Theory of Economic Development?

published in: Industry and Innovation, 2002, Vol.9, pp. 7 - 22.
R. Joosten
On Repeated Games with Vanishing Actions

published in: International Game Theory Review, 2005, Vol. 7 (1), 107 - 115.
U. Witt
Social Cognitive Learning and Group Selection - A Hayekian Model of Societal Evolution

published as: "Observational learning, group selection, and societal evolution", Journal of Institutional Economics 4:1 (2008), 1–24.
W. Wadman
Technological Change, Human Capital and Extinction

published in: Journal of Bioeconomics, 2001, Vol.3, pp. 65 - 68
T. Brenner, T. Slembeck
Noisy Decision Makers. On Errors, Noise and Inconsistencies in Economic Behavior
U. Witt
Conceptions vs. Routines - On the Development of Firms and the Evolution of Markets
C. Sartorius
The Evolution of Social Norms and Values by Means of Social Group Selection

published as: "The Relevance of the Group for the Evolution of Social Norms and Values.", Constitutional Political Economy, 2002, Vol. 13, pp. 149 - 172.
G. Buenstorf
Designing Clunkers: Demand-Side Innovation and the Early History of the Mountain Bike

published in: J. S. Metcalfe; U. Cantner (eds.): Change, Transformation and Development. Heidelberg: Physica, (2003), pp. 53-70.
W. Ruprecht
Consumption of Sweeteners: An Evolutionary Analysis of Historical Development

published as: "The historical development of the consumption of sweeteners - a learning approach" Journal of Evolutionary Economics, 15 (2005): 247-272.
T. Brenner
Self-organisation, Local Symbiosis and the Emergence of Localised Industrial Clusters

published in: T. Brenner, 'Local Industrial Clusters, Existence, Emergence and Evolution, Routledge', London,2004, ch. 2.2
H. Siegenthaler
Understanding and the Mobilisation of Error - Eliminating Controls in Evolutionary Learning
U. Witt
The Evolutionary Perspective on Economic Policy Making - Does it Make a Difference?

published as: "Economic Policy Making in Evolutionary Perspective", Journal of Evolutionary Economics, 2003, Vol.13(2), pp. 77-94.

Papers 2000 [back to top] Top

F. Belussi
Accumulation of Tacit Knowledge and Division of Cognitive Labour in the Industrial District/Local Production System
T. Brenner
The Evolution of Localised Industrial Clusters: Identifying the Processes of Self-Organisation

published in: T. Brenner, 'Local Industrial Clusters, Existence, Emergence and Evolution, Routledge', London,2004, ch. 2.4
G. Z. Sun, U. Witt
Myopic Activity Variations and Aggregate Output Dynamics - A Note on the Behavioral Foundations of the Business Cycle

published as: "Myopic Behavior and Cycles in Aggregate Output. A Note on the Role of Correlated Quantity Adjustments.", Jahrbücher für Nationalökonomie und Statistik, 2002, Vol. … pp
U. Witt
Genes, Culture, and Utility
S. Rizzello
Cognition and Evolution in Economics
U. Witt
Changing Cognitive Frames - Changing Organizational Forms. An Entrepreneurial Theory of Organizational Development

published in: Industrial and Corporate Change, 2000, Vol. 9, pp. 733 - 775.
M. Wohlgemuth
Democracy as an Evolutionary Method

published in: P. Pelikan, G. Wegner (eds.), 'The Evolutionary Analysis of Economic Policy', Cheltenham: Edward Elgar, 2003, 96-127.
K. Rathe, U. Witt
The "Nature" of the Firm - Functionalist vs. Developmental Interpretations

published as: "The Nature of the Firm - Static versus Developmental Interpretations.", Journal of Management and Governance, 2001, Vol. 5, pp. 331 - 351.
B. Flieth, J. Foster
Interactive Expectations

published in: Journal of Evolutionary Economics, 2002, Vol.12(4), pp. 375 - 395.
T. Brenner, R. Joosten, U. Witt
On Games with Frequency-Dependent Payoffs

published in: International Journal of Game Theory, 2002, Vol 31, pp.609 - 620.
K. Jakee, G. Z. Sun
Adaptive Preferences and Welfare State Dynamics: A Simple Model

published as: "External habit formation and dependency in the welfare state", European Journal of Political Economy, 2005, Vol 21 (1), 83-98.
T. Brenner
The Dynamics of Prices - Comparing Behavioural Learning and Subgame Perfect Equilibrium

published as: "A Behavioural Learning Approach to the Dynamics of Prices.", Computational Economics, 2002, Vol. 19 (1), pp. 67 - 94.

Papers 1999 [back to top] Top

Proceedings of the Symposium
Assessing the Potential of the Evolutionary Approach to Economics
G. Buenstorf
Self-organization and Sustainability: Energetics of Evolution and Implications for Ecological Economics

published in: Ecological Economics, 2001, Vol. 33 (1), pp. 119 - 134.
B. J. Loasby
Decision Premises, Decision Cycles and Decomposition

published in: Industrial and Corporate Change, 2000, Vol. 9, pp. 709 - 731.
T. Brenner
Consumer Behavior, Reinforcement Learning and the Dynamics of Fashion
U. Witt
Between Appeasement and Belligerent Moralism - The Evolution of Moral Conduct in International Politics

published in: Public Choice, 2001, 106, pp. 365 - 388.
R. Joosten
The Odd Couple: Walras and Darwin

published as: "Walras and Darwin: an odd couple?" in: Journal of Evolutionary Economics, 2006, Vol 16 (5), 561-573.

Papers 1998 [back to top] Top

S. Stahl
Persistence and Change of Economic Institutions - A Social-Cognitive Approach

published in: P.P. Saviotti, ed., 'Technology and Knowledge. From the Firm to Innovation Systems.', Cheltenham: Edward Elgar, 2000, pp. 263 - 284
R. Joosten
Evolution as a Hierarchy of Selection and Learning: A General Deterministic Model
U. Witt
Learning to Consume - A Theory of Wants and the Growth of Demand

published in: Journal of Evolutionary Economics, 2001, Vol.11, pp. 23 - 36.
P. Pelikan
The Origins of Successful Economic Organizations: A Darwinian Explanation with Room for Self-Organizing
S. Stahl
An Evolutionary Perspective in Transition Theory
J. Mokyr
Science, Technology, and Knowledge: What Historians can Learn from an Evolutionary Approach
T. Brenner, W. Weidlich, U. Witt
International Co-movements of Business Cycles in a 'Phase-locking' Model

published in: Metroeconomica, 2002, 53:2, pp. 113 - 138.
J. Foster
Competition, Competitive Selection and Economic Evolution

published in: P. Garrouste, ed., 'Evolution and Path Dependence in Economic Ideas: past and present.', Cheltenham: Edward Elgar, 2001, pp. 107 - 132.

Papers 1997 [back to top] Top

T. Brenner, U. Witt
Melioration Learning in Games With Constant and Frequency-dependent Pay-offs

published in: Journal of Economic Behavior and Organization, 2003, Vol.50, pp.429 -448
U. Witt
Economics and Darwinism

published as: 'Bioeconomics as Economics from a Darwinian Perspective.', Journal of Bioeconomics, 1999, Vol. 1, pp. 19 - 34.
K. Binmore
The Evolution of Fairness Norms

published in: Nordic Journal for Political Economy 23 (1997), 150-173.
T. Brenner
Reinforcement Learning in 2 x 2 Games and the Concept of Reinforcably Stable Strategies
J. S. Metcalfe
The Evolutionary Explanation of Total Factor Productivity Growth: Macro Measurement and Micro Process

published in: Revue d'Economie Industrielle, 1997(2), No. 80, pp. 93 - 114.
U. Witt
'Lock-In' vs. 'Critical Masses' - Industrial Change under Network Externalities

published in: International Journal of Industrial Organization, 1997, Vol. 15, pp. 753 - 773.

Papers 1996 [back to top] Top

R. H. Day
Macroeconomic Evolution: Long Run Development and Short Run Policy
U. Witt
Imagination and Leadership - The Neglected Dimension of the (Evolutionary) Theory of the Firm

published in: Journal of Economic Behavior and Organization, 1998, Vol. 35, pp. 161 - 177.
B. Flieth, G. v. Wangenheim
Interactive Opinion Formation In a Multi-Opinion Model
We model incompletely informed individuals who adopt their opinion from a range of two or more opinions. Probabilities of adoption depend on information provided by other individuals, hence on the current shares of opinions in the population; and on external information. Using the synergetic tools to analyse this markov process we show that multiple stationary distributions of opinions may exist. Whether path dependency exists, depends on the relevance and bias of external information. Applying this model to Public Choice theory we can explain partial indetermency of interest groups investements' outcome.
T. Brenner
Learning in a Repeated Decision Process: A-Variation-Imitation-Decision Model
Decision making is one of the most elementary human actions. Many different models describing it have been put forward over the last decades. Considering the mathematical models, most of them are rational choice models where people are assumed to have preferences and some information about some alternatives, if not all. By contrast, the present paper focuses on repeated decision situations where the decision makers have no information about the alternatives except that they exist. However, they are able to learn about the attributes of the alternatives by trial and error or by the exchange of information with others. Such behaviour can be observed in cases where attributes of decision alternatives can not be assigned a priori or where people act more intuitively than rationally. Although such situations seem to be significant for many decision problems they have gained little attention in the literature. Only in recent years have scientists become slightly more interested in learning processes in decision making. The present paper presents a model which includes the main aspects of learning. This model is mathematically analysed and its main characteristics are discussed. Finally, the evolution of risk averse behaviour is discussed as one example for an application of the model.

published as: "Implications of Routine-Based Learning for Decision Making", European Journal of Economic and Social Systems, 2001, Vol. 15 (3), 131 152.
N. J. Foss
Evolutionary Theories of the Firm: Reconstruction and Relations to Contractual Theories
I examine the role of firms in evolutionary economics and undertake a comparison with contractual/transaction cost theories of the firm. A growing body of evolutionary work on economic organization, founded on a conceptualization of firms as knowledge accumulating entities, is now opportunism, and in other ways applies explanatory ides that differ from those of contractual/transaction cost theories to address such issues as the internal organization of firms, their boundaries and the reasons for the existence. Based on philosophical contributions by Wladyslaw Krajewski, I examine the relations between the body of evolutionary theories of the firm and contractual/transaction cost theories. While it is admittedly possible to argue that the two theories are competitive, the interpretation adopted here is one that stresses complementarity.

published in: K. Dopfer, ed., 'Evolutionary Economics: Program and Scope'. Boston: Kluwer, 2001, 319 – 355.
U. Witt
The Political Economy of Mass Media Societies

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