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An Evolutionary Theory of Economic Change
This book contains the most sustained and serious attack on mainstream, neoclassical economics in more than forty years. Richard R. Nelson and Sidney G. Winter focus their critique on the basic question of how firms and industries change overtime. They marshal significant objections to the fundamental neoclassical assumptions of profit maximization and market equilibrium, which they find ineffective in the analysis of technological innovation and the dynamics of competition among firms.
To replace these assumptions, they borrow from biology the concept of natural selection to construct a precise and detailed evolutionary theory of business behavior. They grant that films are motivated by profit and engage in search for ways of improving profits, but they do not consider them to be profit maximizing. Likewise, they emphasize the tendency for the more profitable firms to drive the less profitable ones out of business, but they do not focus their analysis on hypothetical states of industry equilibrium.
The results of their new paradigm and analytical framework are impressive. Not only have they been able to develop more coherent and powerful models of competitive firm dynamics under conditions of growth and technological change, but their approach is compatible with findings in psychology and other social sciences. Finally, their work has important implications for welfare economics and for government policy toward industry.
To replace these assumptions, they borrow from biology the concept of natural selection to construct a precise and detailed evolutionary theory of business behavior. They grant that films are motivated by profit and engage in search for ways of improving profits, but they do not consider them to be profit maximizing. Likewise, they emphasize the tendency for the more profitable firms to drive the less profitable ones out of business, but they do not focus their analysis on hypothetical states of industry equilibrium.
The results of their new paradigm and analytical framework are impressive. Not only have they been able to develop more coherent and powerful models of competitive firm dynamics under conditions of growth and technological change, but their approach is compatible with findings in psychology and other social sciences. Finally, their work has important implications for welfare economics and for government policy toward industry.
452 pages, Paperback
First published October 15, 1985
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About the author
Nelson
603 books1 followerLibrarian note:
There is more than one author in the GoodReads database with this name
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For the American comic book artist known professionally as Nelson please check Nelson (Faro DeCastro)
For the Canadian publisher please check Nelson Education
For the German publisher of children books please check Nelson Verlag GmbH
There is more than one author in the GoodReads database with this name
This profile may contain books from multiple authors of this name
For the American comic book artist known professionally as Nelson please check Nelson (Faro DeCastro)
For the Canadian publisher please check Nelson Education
For the German publisher of children books please check Nelson Verlag GmbH
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Displaying 1 - 5 of 5 reviews
July 4, 2019
40 years on, Nelson & Winter's groundbreaking work remains the benchmark of evolutionary theorizing in economics.
Aside from a few exceptionally lucid chapters, the book is difficult reading and its intended (and only suitable) readership is academic. Obtuse neoclassically inspired mathematical models and computer simulations clutter the middle chapters. It is important to recognize that these sections can be easily skipped. However, these models are useful 1) as commentaries on, and alternatives to, mainstream neoclassical models of growth and innovation; and 2) as examples of the sorts of applied research that the broader framework and theory make possible. By the authors' own admission, however, they are not essential to the main story.
Well, what is the theory? It is a stylized neo-Schumpeterian theory of evolutionary growth and innovation. It highlights the quasi-Darwinian process of "search-and-selection" whereby competitive markets under a supportive legislative regime produce a (stochastic) diversity of innovative solutions - e.g. strategies, decision rules, technologies, management styles - and (differentially) select out of that diversity those solutions that are "better" or more efficient. It is a brilliant positive theory with important policy implications.
The policy implications take up only the last 50 pages or so. Despite their brevity, they should not be ignored. The link between positive and normative economics, which was so clear to Adam Smith, needs to be strengthened anew. N&W are remarkably perceptive in their assessments here, foreshadowing the contemporary concers with growing inequality, "winner-takes-all" economy, technological development, etc. Their contribution to positive science is a bridge to better public policy prescriptions.
The broad range of insights that the book contains is staggering. The combination of Schumpeter, Darwin, Hayek, Simon, Kahneman & Tversky, and others, was ahead of its time. N&W do not have the last word on every issue, but they offer important modifications to our scientific models of human behaviour that increase the accuracy of economists' predictions.
Although contemporary evolutionary and institutional economists have improved in many ways on the somewhat rigid and limited models of N&W, no such monographs have exceeded, and few have matched, the holistic scope and analytical brilliance of this deserved classic.
(PS. If the reader still hesitates to plunge - whether due to the book's age, length, or math-heavy exposition - let me allay their fears; the forbidding exterior is breachable and the core is still worth exploring.)
Aside from a few exceptionally lucid chapters, the book is difficult reading and its intended (and only suitable) readership is academic. Obtuse neoclassically inspired mathematical models and computer simulations clutter the middle chapters. It is important to recognize that these sections can be easily skipped. However, these models are useful 1) as commentaries on, and alternatives to, mainstream neoclassical models of growth and innovation; and 2) as examples of the sorts of applied research that the broader framework and theory make possible. By the authors' own admission, however, they are not essential to the main story.
Well, what is the theory? It is a stylized neo-Schumpeterian theory of evolutionary growth and innovation. It highlights the quasi-Darwinian process of "search-and-selection" whereby competitive markets under a supportive legislative regime produce a (stochastic) diversity of innovative solutions - e.g. strategies, decision rules, technologies, management styles - and (differentially) select out of that diversity those solutions that are "better" or more efficient. It is a brilliant positive theory with important policy implications.
The policy implications take up only the last 50 pages or so. Despite their brevity, they should not be ignored. The link between positive and normative economics, which was so clear to Adam Smith, needs to be strengthened anew. N&W are remarkably perceptive in their assessments here, foreshadowing the contemporary concers with growing inequality, "winner-takes-all" economy, technological development, etc. Their contribution to positive science is a bridge to better public policy prescriptions.
The broad range of insights that the book contains is staggering. The combination of Schumpeter, Darwin, Hayek, Simon, Kahneman & Tversky, and others, was ahead of its time. N&W do not have the last word on every issue, but they offer important modifications to our scientific models of human behaviour that increase the accuracy of economists' predictions.
Although contemporary evolutionary and institutional economists have improved in many ways on the somewhat rigid and limited models of N&W, no such monographs have exceeded, and few have matched, the holistic scope and analytical brilliance of this deserved classic.
(PS. If the reader still hesitates to plunge - whether due to the book's age, length, or math-heavy exposition - let me allay their fears; the forbidding exterior is breachable and the core is still worth exploring.)
January 11, 2014
The authors are very insightful but their prose is unfortunately reminiscent of the worst of Thomas Schelling's excesses as an author: often mind-blankingly dense. A person can read the same few sentences several times over without their leaving an impression in the mind. I think I ought to go in search in more up to date, clearly written approaches to evolutionary economics.
September 6, 2012
This is an important volume of economic theory that deals with alternatives to traditional neoclassical analysis. This sounds arcane - and it may well be - the discussion has considerable implications for how policy develops regarding technological innovation, growth, etc. These authors in particular are known for their focus on "path-dependence" -- the idea that where a system goes depends on what it already has done, which suggests that not all paths to economic growth are open in a given system once time has passed and important commitments have been made. These views have been very important for consultants and academics who are interested in working with economic ideas but don't want to leave the focus solely in economic theory.
April 16, 2017
I'm not a big fan of neoclassic economics or the relationship between economics and the other social sciences. This book develops an evolutionary model of economics based on Schumpterian concepts. Chapter 16 the great discussion about the use of analysis to support policy development. Chapter 17 provided a good discussion of economics' relationship with the other social sciences.
April 22, 2020
Great book. Really helped me think about how our worldview has changed from 19th century to 20th and now to 21st.
Displaying 1 - 5 of 5 reviews