Models in evolutionary economics and environmental policy: Towards an evolutionary environmental economics

In this paper we review evolutionary economic modelling in relation to environmental policy. We discuss three areas in which evolutionary economic models have a particularly high added value for environmental policy-making: the double externality problem, technological transitions and consumer demand. We explore the possibilities to apply evolutionary economic models in environmental policy assessment, including the opportunities for making policy-making endogenous to environmental innovation. We end with a critical discussion of the challenges that remain.

Technological diffusion, welfare and growth: technological succession in the presence of network externalities

The paper examines the conditions under which technological successions can occur in the presence ofnetwork externalities. A multi-agent model is developed in which the product designs offered by firmsco-evolve with consumer preferences. Firms compete though product innovation. The modelincorporates a modified genetic algorithm (GA) in which imitation is conducted via a process ofselective transfer (a one-way crossover) and internal R&D is conducted via selective mutation.Following an initial period in which old technology firms develop their designs and networkexternalities accrue, a technological shock occurs in which new technology-based firms enter themarket. The findings of the model indicate that a necessary condition for a technological successionare the existence of at least one consumer group that champions the new technology, developing newpreferences for its characteristics. Further, the introduction of novel characteristics are have a greaterbearing on the probability of a succession than incremental gains in characteristics offered by the oldtechnology. Third, the analysis identifies an inverse relationship between time the probability of atechnological succession.economics of technology ;

Structural change in the presence of network externalities: a co-evolutionary model of technological successions

The paper examines the conditions under which technological successions can occur in the presence of network externalities. A two-stage, multi-agent simulation model is presented in which product designs co-evolve with consumer preferences. It provides a rich framework in which to study the complex phenomenon of quality. Following an initial period, in which old technology firms develop their designs and externalities accrue, a technological shock occurs. New technology firms and new consumer classes enter the market. Data from the simulation model is analysed by identifying a robust econometric model of the probability of succession, given the immediate state of the post-shock market. 4 factors affecting the probability of a succession are identified. First, succession can occur if gains in direct utility from higher quality new technology goods outweigh the network utility of old technology goods. Second, sailing ship effects are possible. Old firms can innovate in order to see off the new entrants. Hence, a better initial (new technology) design does not guarantee succession. Third, a trade-off exists between quality and price. A succession will not occur if cost (price) differentials favour the old technology. Consequently, increasing returns in production enjoyed by established firms are an important barrier to successful entry. The fourth factor is time: the relative length of time old firms have to develop their products, and that which new firms have to develop their products.research and development ;

An Agent-Based Simulation Model for Understanding Diffusion Dynamics of Open-Source (OS) Software in the Presence of Upgrades

There is an increasing interest in the evolution of open-source software (OS). Researchers as well as practitioners are trying to better understand factors that impact the diffusion of OS. This paper presents an agent-based model of OS diffusion. Specifically, we investigate how software upgrade cycle affects firms’ OS adoption. In addition, we also incorporate factors such as variability in OS support costs, interoperability issues and network structure that have not been systematically studied in prior OS research. Simulation results demonstrate the individual and interaction effects of these variables on the rate of OS diffusion. High variability in OS support costs and more frequent introduction of major upgrades encourage OS diffusion. The rate of diffusion is also influenced by the degree of cliquishness in the network structure. Interoperability issues hinder OS diffusion when proprietary software (PS) is currently the dominant standard. However, if other factors encourage OS diffusion and a critical mass of OS adopters is reached, then interoperability issues encourage OS diffusion. The impact of interactions between network structures and other factors on diffusion dynamics is also illustrated

Socially Responsible Investment in General Equilibrium

Socially responsible investment in analyzed in a general equilibrium context. This is important in order to understand the ultimate consequences of SRI on the decisions of economic agents. Building on models by Brock (1982) and Merton (1987), SRI is modelled as the choice to voluntarily give up investment in stocks and bonds issues by a firm producing an externality. The model is used to analyze the utility costs of SRI to the responsible investor and the impact on the price of the stock issued by the firm which is responsible for the externality. The results shed light on the factors which may magnify or reduce the impact of SRI, among which are crucial the wealth commended in relative terms by the responsible agents and the diversification possibilities offered by the firms which are excluded from the investment opportunity set. A set of firms targeted by SRI may be seriously affected by SRI only if the responsible investors command a large portion of overall wealth; moreover the same firms are more likely to be hit by SRI behavior if they do not represent important diversification instruments. Firms with unique characteristics from the point of view of overall diversification are less likely to be the target of SRI.General equilibrium, Redistributive effects, Public goods

Agent-based simulation of lock-in dynamics in a duopoly

Lock-in is observed in real world markets of experience goods; experience goods are goods whose characteristics are difficult to determine in advance, but ascertained upon consumption. We create an agent-based simulation of consumers choosing between two experience goods available in a virtual market. We model consumers in a grid representing the spatial network of the consumers. Utilising simple assumptions, including identical distributions of product experience and consumers having a degree of follower tendency, we explore the dynamics of the model through simulations. We conduct simulations to create a lock-in before testing several hypotheses upon how to break an existing lock-in; these include the effect of advertising and free give-away. Our experiments show that the key to successfully breaking a lock-in required the creation of regions in a consumer population. Regions arise due to the degree of local conformity between agents within the regions, which spread throughout the population when a mildly superior competitor was available. These regions may be likened to a niche in a market, which gains in popularity to transition into the mainstream

Peer influence in network markets: a theoretical and empirical analysis

Network externalities spur the growth of networks and the adoption of network goods in two ways. First, they make it more attractive to join a network the larger its installed base. Second, they create incentives for network members to actively recruit new members. Despite indications that the latter "peer effect" can be more important for network growth than the installed-base effect, it has so far been largely ignored in the literature. We address this gap using game-theoretical models. When all early adopters can band together to exert peer influence-an assumption that fits, e.g., the case of firms supporting a technical standard-we find that the peer effect induces additional growth of the network by a factor. When, in contrast, individuals exert peer influence in small groups of size n, the increase in network size is by an additive constant-which, for small networks, can amount to a large relative increase. The difference between small, local, personal networks and large, global, anonymous networks arises endogenously from our analysis. Fundamentally, the first type of networks is "tie-reinforcing," the other, "tie-creating". We use survey data from users of the Internet services, Skype and eBay, to illustrate the main logic of our theoretical results. As predicted by the model, we find that the peer effect matters strongly for the network of Skype users-which effectively consists of numerous small sub-networks-but not for that of eBay users. Since many network goods give rise to small, local networks

Sustainability of Open Systems Based on an Agent Model with Fluctuation

In IT technology, especially in software development, open development system has been proven to be useful. Linux, apache software and GNU software are typical examples. Still, it is also known that there are many open software development projects that failed or stopped developments. So far, it has not been clearly known what the key factor is to give the difference between the successful open projects and the ones that fails. In this report, we analyze the sustainability of open systems based on an agent model that explicitly takes the effect of fluctuation into account. Although the model is simple, it is shown that the system with many less-powered leaders is more stable than a system with small number of powerful leaders

Diffusion Dynamics of Open-Source Software in the Presence of Upgrades: An Agent-Based Computational Economics (ACE) Approach

Researchers have identified numerous factors that impact the diffusion of open source software (OSS). This paper proposes an integrated model that studies how key factors affect the diffusion dynamics of OSS. Specifically, we investigate the role of software upgrade cycle in the diffusion of OSS. We also incorporate factors such as variability in OSS support costs, interoperability issues and network structure that have not been systematically studied in prior OSS research. Our results demonstrate interesting effects of these factors on diffusion dynamics of OSS. Variability of OSS support costs, length of upgrade cycle and interoperability costs are identified as major determinants of OSS diffusion. The results illustrate that a proprietary software (PS) vendor should consider several other strategic variables besides price such as interoperability costs and upgrade cycle that affect OSS diffusion. The proposed model can be used as a building block to model competitive dynamics in software markets

When a Fad Ends: An Agent-Based Model of Imitative Behavior

agent-based modeling, fads, purchasing patterns