Optimal routines and optimization routines

Orthodox economists ordinarily profess a complete lack of interest in the processes by which firms actually make decisions. From their perspective, the fact that our discussion to this point has been con­ cerned with how organizations function means that it offers no clue as to “whether firms really maximize profits,” since that question re­

Routines, heuristics, and innovation

Both in customary usage and in our technical use of the term, “inno­ vation” involves change in routine. We have stressed the uncertainty that inevitably surrounds technical innovation-the implementation of a design for a new product, or of a new way to produce a product. A similar uncertainty surrounds other kinds of innovation-the es­

Summary: routines as genes

Theorists should aim to tell the truth in their theorizing, but they cannot aim to tell the whole truth. For to theorize is precisely to focus on those entities and relationships in reality that are believed to be central to the phenomena observed- and largely to ignore the rest. To advance a new theory

Characterizing economic selection processes

There is nothing about economic selection arguments that makes them peculiarly transparent, or otherwi se obviates the need for careful logical analysis. Indeed, if anything is transparently obvious about the sort of casual argument typified by the Friedman passage quoted above, it is the existence of gaping holes in the logic. For ex­ ample,

A particular model of economic selection

We now describe and analyze a simple evolutionary model that inev­ itably settles eventually into a static equilibrium that closely re­ sembles the competitive equilibrium of orthodox theory. After com­ pleting the formal analysis, we review the critical assumptions that underlie i ts orthodox conclusions, and in so doing identify some of the limitations

Static Selection Equilibrium: Complications and snags

The simple formal model we have presented and analyzed above hardly does justice to the sweep of intuition that has led some econo­ mists to propose that selection forces provide support for the as­ sumptions and conclusions of orthodox theory. In this sense, the model is almost a parody of those intuitive arguments. We

Accounting for firm and industry response

The following propositions about the behavior of firms are consistent with both an orthodox and an evolutionary view, although the emphasis and connotations of each would be different: at any time, firms in an industry can be viewed as operating with a set of tech­ niques and decision rules (routines), keyed to conditions external

A Markov model of factor substitution

In this section we focus on one aspect of firm and industry response to changed market conditions-factor substitution induced by changed factor prices. A model of technique choice by the individual firm is set forth, and its implications for the phenomena of factor substitution at the firm and industry level are explored. The conclu­ sions 

What difference does it make?

What difference does it make if one takes an evolutionary perspec­ tive or an orthodox one on firm and industry response to changed market conditions? By an evolutionary perspective here we mean the broadly define d point of view we discussed earlier in the chapter, rather than the particular model presented above. Just as

The residual explanation of economic growth

1. Technological Change as a Residual “Neutrino” This type of intellectual sleight of hand is not peculiar to economic analysis, and reasonable toleration for it is not necessarily inimical to the progress of science. The neutrino is a famous example in phys­ ics of a “labeling” of an error term that proved fru itful.

The need for an evolutionary approach to growth theory

The issue then is this. Following upon the discovery that there was a large liresidual” involved in neoclassical explanations of economic growth, and the identification of that residual with technical change, economists undertook a considerable amount of research aimed toward pinning down what technical change actually is. Th is is just what happened after physicists

The Evolutionary model of Economic Growth

An evolutionary model of economic growth must be able to explain the patterns of aggregate outputs, inputs, and factor prices that neo­ classical theory “explains .” In the exercise here, the standard of ref­ erence is provided by Robert Solow’ s classic article “Technical Change and the Aggregate Production Function” (Solow, 1957) . The

The growth record of the simulated economy

The computer output describing the experimental simulation runs contains abundant quantitative detail and is rich in qualitative pat­ terns . Firms thrive and decline; new techniques appear, dominate the scene briefly, and then fade away. Time series for most aggregate data display strong trends, and also a good deal of short-period fluc­ tuation. The

The experiments of Evolutionary model

In our discussion above of the logic of the model, we introduced four variables that tie macroeconomic performance to microeconomic behavior and that were v aried experimentally in the simulation runs. These variables were the ease of innovation, the emphasis on imita­ tion, the cost of capital, and the labor-saving bias of search. What

Development and backwardness in a two-technology evolutionary model

The two-technology model would seem appropriate to the study of the processes by which a particular new technology replaces an older one within an industry, and of the associated effects of this on such industry variables as productivity. A large number of empirical studies have been concerned with the first part of this question:

Economic Growth as a Pure Selection Process: Many techniques and many variable inputs

In the preceding analysis, there were only two techniques and one variable input (labor). We now generalize the analysis to consider se­ lection on many techniques, each involving many variable inputs. We preserve the other assumptions above, including that all tech­ niques have the same capital-output ratio, and that relative expan­ sion or contraction

Search strategies and topographies: Elements of an Enriched Search Model

Our proposal for a more general model of search has several major elements. The first is a set of not yet discovered or invented tech­ nologies. Any technology can be described under two different headings. One involves economic parameters, such as input coeffi­ cients or certain product attributes. If these are known, then for

Search strategies and topographies: Decision Rules Guiding the Level of R&D Effort

In Chapter 7 we argued that one would expect decision rules that have stood the test of time to be plausibly responsive to variables to which firms should attend if they are to achieve their purposes . This will be our hypothesis about decision rules guiding R&D behavior. Many different kinds of organizations do

Search strategies and topographies: Factors Influencing the Allocation of Effort, Given the Overall Budget

In contrast with the situation regarding the level of effort where there is a certain asymmetry in the effects of factors influencing payoff and factors influencing cost, there ought to be more symmetry in deci­sion rules guiding the allocation of effort. Assume that the product in question (being sold by the firm) can have

Search strategies and topographies: Cumulative Technological Advance

The discussion thus far has focused on R&D activity at a single mo­ ment in ti me. It is possible to explain continuing technological progress over time within a simple search model of the sort dis­ cussed above, under the assumption that tomorrow’ s ro und of pro­ j ects is independent of what