Abstract
In their 1982 book, “An evolutionary theory of Economic Change”, Nelson and Winter (An evolutionary Theory of Economic Change, The Belknap Press of Harvard University Press, Cambridge, 1982) develop several detailed quantitative models that are explicitly based on an analogy with biological evolution. These models have analogues of mutation, selection and heredity and seem to explain economic change in an industry as an evolutionary process. In the most complex of these models, change is the product of two complementary mechanisms: a mechanism where profitable firms increase their capital stock while unprofitable firms shrink, and a mechanism whereby unprofitable firms innovate to improve their production efficiency. Analysis of the model suggests that it plausibly involves evolution by natural selection in an important sense of the term, but also that both of the mechanisms involved exert selection pressure on the population. Furthermore, part of the apparently evolutionary change in the model involves the growth of firms, rather than reproduction in anything resembling the sense presumed by standard accounts of evolution by natural selection. I consider how the significant differences between Nelson and Winter’s evolutionary models and those of biology illuminate the general nature of evolutionary explanations, particularly the roles of selection and novelty, and discuss how this can serve as a guide to evolutionary modelling generally.
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Notes
- 1.
Sober has stated this repeatedly [1, 2]; Dawkins [3] popularised the notion with his concept of ‘memes’, it is defended at length in Aldrich et al. [4]; see also Taylor in this volume. Criticisms of evolutionary ideas outside biology tend to be of the specifics, not of the principle, although see Foster [5] and Witt [6] for arguments against the applicability of ‘biological analogies’ to economics.
- 2.
Perhaps engaged in evolving from ‘savagery’ to ‘barbarism’.
- 3.
Sanderson illustrates this in Evolutionism and its Critics [9].
- 4.
- 5.
In the environment of interest: competitive advantage is always environment relative.
- 6.
Although ‘superior fitness’ is often intended to refer specifically to reproductive success, hence my preference for the broader term, ‘success’.
- 7.
Darwin, 1859 [12, p. 90].
- 8.
- 9.
This is emphasized in Sober [2].
- 10.
- 11.
The mechanisms being ‘distinct’ insofar as each individually would suffice for a Markov process.
- 12.
- 13.
- 14.
Compare Fisher’ Genetical Theory of Natural Selection, [11] for example, which is almost exclusively concerned with providing proofs-in-principle that natural selection could have certain sorts of effects.
- 15.
If such a firm does find a technique, it may re-enter the market with a small stock of capital.
- 16.
Profits are given by firm revenues (equal to firm output, determined by its production technique and capital stock), minus its labor costs, minus its required dividend (a function of its capital stock; this parameter is varied in the simulations run by Nelson and Winter).
- 17.
Nelson and Winter leave their demand function as constant over time: I make use of the possibility of an influence of time on labour costs subsequently.
- 18.
In situations where there is variety among the existing techniques, at least. This highlights the fact that any mechanism is only ‘selective’ under certain circumstances, further undermining the appropriateness of identifying selection with any particular mechanism.
- 19.
Either by being strictly superior to their rivals under all circumstances, or by having a superiority with regard to one of the input coefficients that outweighs inferiority in the other under the prevailing cost of labour.
- 20.
The attrition of capital over time is a probabilistic process, so a firm can randomly shrink more or less than expected; this effect is more likely to be significant insofar as the firm is relatively small. Such effects are analogous to drift in biology, but are relatively small because most of the mechanism is deterministic.
- 21.
Darwin, 1859[12, p. 90].
- 22.
That is the labor input coefficient and the capital input coefficient.
- 23.
There is a small effect, in that larger firms are more likely to be imitated than small firms, as firms tend to be imitated in proportion to their share of industry output. This will effectively be random, in the sense that firm size is set by the initial conditions and is unrelated to the historical success of the firm in terms of profitability. Firm size therefore would factor in the model only as an initially set ‘imitation bias’: one could set the initial size of the firms to be equal and remove this effect entirely.
- 24.
Meaning an increasing proportion of the population employs strictly superior techniques.
- 25.
That is, the tendency of a trait to be lost by those who have it and gained by those who don’t.
- 26.
Nelson argues for the same conclusion on different grounds in his 2007 paper “Universal Darwinism and Evolutionary Social Science” [20]
- 27.
Of course, what constitutes ‘success’ will depend on the model – and if nothing at all can cause a type to increase its prevalence over other types, then there is no ‘success’ in the model in an evolutionary sense. What constitutes success is set by the mechanisms, so the identification of ‘success’ with profitability in Nelson and Winter’s models is licensed precisely because of its role in determining firm growth and ‘search’ patterns.
- 28.
Heritability is a way of ensuring the appropriate degree of ‘stickiness’ when reproduction is the mode of change, and is only specifically required for such models.
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Earnshaw-Whyte, E. (2012). Breaking the Bonds of Biology – Natural Selection in Nelson and Winter’s Evolutionary Economics. In: Brinkworth, M., Weinert, F. (eds) Evolution 2.0. The Frontiers Collection. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-20496-8_10
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