former Evolutionary Economics Group

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.

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. (PDF)

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.

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. (PDF)

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.

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.

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.

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. (PDF)

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. (PDF)

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. (PDF)

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. (PDF)

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. (PDF)

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.

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.

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.

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.

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.

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. (PDF)

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.

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.

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.

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. (PDF)

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.

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.