An Evolutionary Theory of Economic Change
This book contains the most sustained and serious attack on mainstream, neoclassical economics in more than forty years. Nelson and 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.
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advance analysis analytic assumptions average bounded rationality capacity utilization rule capital stock chapter characterized choice CM CM complex concentration context cost decision rules discussion distribution dynamic economic economists effect environment equilibrium evolution evolutionary models evolutionary theory example explored fact factor prices firm behavior firm's formal function imitation important industry initial innovative R&D input coefficients investment involved knowledge labor latent productivity market failure market structure Markov process maximization ment neoclassical nological nomic normative economic O O O O operation optimal organization organizational orthodox theory output parameter particular performance phenomena possible probability distribution problem production function productiv profit profit maximization question ratio regime relative response result returns to scale rH rH role routine runs Schumpeterian competition sectors selection simulation skill Solow specific strategy tacit knowledge tech techniques tend theoretical tion tive values variables welfare economics