Connecting adaptive behaviour and expectations in models of innovation: The Potential Role of Artificial Neural Networks

In this methodological work I explore the possibility of explicitly modelling expectations conditioning the R&D decisions of firms. In order to isolate this problem from the controversies of cognitive science, I propose a black box strategy through the concept of “internal model”. The last part of the article uses artificial neural networks to model the expectations of firms in a model of industry dynamics based on Nelson & Winter (1982)

Competing R&D Strategies in an Evolutionary Industry Model

This article aims to test the relevance of learning through Genetic Algorithms, in opposition with fixed R&D rules, in a simplified version of the evolutionary industry model of Nelson and Winter. These two R&D strategies are compared from the points of view of industry performance (welfare) and firms' relative performance (competitive edge): the results of simulations clearly show that learning is a source of technological and social efficiency as well as a mean for market domination.Learning,Innovation, Industry dynamics, Bounded rationality, Learning, Genetic algorithms

Non Expectations and Adaptive Behaviours: the Missing Trade-off in Models of Innovation

We explore the modelling of the determination of the level of R&D investment of firms. This means that we do not tackle the decision of being an innovator or not, nor the adoption of a new technology. We exclude these decisions and focus on the situations where firms invest in internal R&D in order to produce an innovation. In that case the problem is to determine the level of R&D investment. Our interest is to analyse how expectation and adaptation can be combined in the modelling of R&D investment rules. In the literature both dimensions are generally split up: rational expectations are assumed in neoclassical models whereas alternative approaches (institutional and/or evolutionary) generally adopt a purely adaptive representation.Bounded rationality, learning, expectations, innovation dynamics.

Convergence in the Finite Cournot Oligopoly with Social and Individual Learning

Convergence to the Nash equilibrium in a Cournot oligopoly is a question that recurrently arises as a subject of controversy in economics. The development of evolutionary game theory has provided an equilibrium concept more directly connected with adjustment dynamics, and the evolutionary stability of the equilibria of the Cournot game has been extensively studied in the literature. Several articles show that the Walrasian equilibrium is the stable ESS of the Cournot game. But no general result has been established for the difficult case of simultaneous heterogenous mutations.Authors propose specific selection dynamics to analyze this case. Vriend (2000) proposes using a genetic algorithm for studying learning dynamics in this game and obtains convergence to Cournot equilibrium with individual learning. The resulting convergence has been questioned by Arifovic and Maschek (2006). The aim of this article is to clarify this controversy: it analyzes the mechanisms that are behind these contradictory results and underlines the specific role of the spite effect. We show why social learning gives rise to the Walrasian equilibrium and why, in a general setup, individual learning can effectively yield convergence to the Cournot equilibrium. We also illustrate these general results by systematic computational experiments.Cournot oligopoly; Learning; Evolution; Selection; Evolutionary stability; Nash equilibrium; Genetic algorithms

Technological and Social Costs and Benefits of Patent Systems

"If we did not have a patent system, it would be irresponsible, on the basis of our present knowledge of its economic consequences, to recommend instituting one. But since we have had a patent system for a long time, it would be irresponsible, on the basis of our present knowledge, to recommend abolishing it." Machlup (1958) - cited by Hall (2002) The demand for a stronger patenting system has become in the recent period a major source of tension between the U.S. government and the E.U. The US demand is generally motivated by the conventional economic wisdom affirming that a strong patenting system yields convenient incentives for the private investment in Research and Development (R&D) and hence, for technical progress in Society. This rather mechanistic approach of technological dynamics and of the role of the patenting is mainly based on the neoclassical theory of technical progress that strongly focuses on the agents' incentives rather than on the dynamics of the existent technological systems. Other appreciations of the existing patenting systems have nevertheless continued to be quite critical (see Machlup (1958) and Penrose (1951)). These appreciations are generally based on approaches where the nature of the actual technologies plays a central role. Moreover, the first part of the opinion emitted by Machlup in the above excerpt becomes very urgent since the question of establishing a strong patenting system is actually scrutinized for some industries in Europe (like the software industry) and in some countries (like Russia and China). We should hence consider the social costs of the patenting system, as well as its advantages, in order to guide such decisions. More specifically, it is time to seriously consider and check the old and new criticism of this system. The shortcomings of the standard wisdom have more recently been pointed out by Merges & Nelson (1990) and Mazzoleni & Nelson (1998). We propose to reassess the theoretical social value of patenting through a model founded on the approach adopted by these more empirical and conceptual studies. We develop a simulation model based on the Nelson & Winter (1982), part V. This basic model is completed by a patent system that allows the protection of the innovations. We therefore use this model for evaluating the efficiency of this system under different technological conditions emphasized by Merges & Nelson (1990) and as a function of different dimensions of patents (mainly their length and their breadth). An econometric study of the results from Monte Carlo simulations is used to evaluate the determinants of the Social costs and benefits of patents. These social effects are mainly characterized at two levels: at the level of the efficiency of the technical progress in the industry, and at the level of the social surplus. The neoclassical approaches conclude to a positive effect on both dimensions. Evolutionary approaches point at the contingency of these results with respect to the technological particularities of the industries. For example, Merges & Nelson (1990) distinguishes four classes of technologies in which the role of patents can be strongly contrasted: discrete inventions, cumulative technologies, chemical technologies and sciencebased technologies. We propose to include the specificities of these classes in our analysis, through different calibrations of the technology space of our industry dynamics model. The results of the simulations will then allow us to check the effectiveness of the patenting system in different configurations and with different characteristics measuring its strength. References Hall, B. (2002), "Current issues and trends in the economics of patents", Lecture to the ESSID Summer School in Industrial Dynamics Hall, B. & Ham Ziedonis, R. M. (2001), The effects of strengthening patent rights on firms engaged in cumulative innovation: Insights from the semiconductor industry, in G. Libecap, ed., "Entrepreneurial Inputs and Outcomes: New Studies of Entrepreneurship in the United States", Vol. 13 of Advances in the Study of Entrepreneurship, Innovation, and Economic Growth, Elsevier Science, Amsterdam. Jaffe, A. B. (2000), "The u.s. patent system in transition: Policy innovation and the innovation process", Research Policy 29, 531–557. Machlup, F. (1958), "An economic review of the patent system", Study No. 15 of Commission on Judiciary, Sub comm. on Patents, Trademarks, and Copyrights, 85th Congress, 2d Session. Mazzoleni, R. & Nelson, R. R. (1998), "The benefits and costs of strong patent protection: A contribution to the current debate", Research Policy 27, 273–284. Merges, R. & Nelson, R. R. (1990), "On the complex economics of patent scope", Columbia Law Review 90, 839–916. Nelson, R. R. & Winter, S. (1982), An Evolutionary Theory of Economic Change, The Belknap Press of Harvard University, London. Penrose, E. (1951), The Economics of the International Patent System, John Hopkins University Press, BaltimorePatent system, social welfare, public policy, intellectual property rights, industrial dynamics

Determinants of the Innovation Propensity in Tunisia: the Central Role of External Knowledge Sources

This article is dedicated to the analysis of the first innovation survey of the Tunisian firms. Starting from basic mechanisms of innovation processes, we test a set of conjectures adapted to a developing country like Tunisia. We analyze the motivation of firms to innovate and the determinants of product and process innovations. Our results show that firms must benefit from external knowledge sources in order to exhibit significant innovation propensities. The large size is also a necessary (but not sufficient) condition for innovation. We also notice that the participation of the State plays an harmful role.Innovation; development; absorptive capacity; learning

Reinforcing the patent system? Effects of patent fences and knowledge diffusion on the development of new industries, technical progress and social welfare

This article extends the industry dynamics model of Vallée & Yildizoglu (2006) in order to carry out a richer theoretical analysis of the consequences of a stronger patent system. This model explicitly takes into account the potentially positive effects of patents: publication of patents participates to the building of a collective knowledge stock on which new innovations can rely, and dropped patents can provide a source of technological progress for firms that are lagging behind the leaders of the industry. These dimensions of the patent system are used to question the negative results of Vallée & Yildizoglu (2006). The main results of the new model show that these positive effects do not counterbalance the negative effects of a stronger patent system on social welfare and global technological progress, even if it is a source of better protection and higher profits for the firms. The model also considers the effect of patents on the survival of the newly founded industries and on their development.Innovation, Technical progress, Patent system, Intellectual property rights (IPR), Technology policy

Export Behaviour and Propensity to Innovate in a Developing Country: The Case of Tunisia

The relation between export behaviour and the propensity to innovate is an important question for a developing economy. This article dedicated to this question through the analysis of the first innovation survey of Tunisian firms. We analyze the relationship between the export behaviour and the innovation propensity of the firms as it can be qualified using econometric estimations (mainly probit models) and non-parametrical regression trees on the results of the first community innovation survey in Tunisia. Our results show that firms that address both the domestic and foreign demands (partial- exporters) have the highest propensity to innovate, and they better benefit from external knowledge sources, as well as a diversified demand. We find that external knowledge sources, internal R&D efforts and some types of cooperative agreements are complementary for product innovations, but the first play an essential role, in the sense that firms must benefit from at least one external knowledge source to attain a significant innovation propensity. We show that innovation behaviour of three subsets of firms are strongly contrasted: pure exporters who only address the foreign demand, pure domestic firms, and partial exporters.Innovation; exports; openness; development; absorptive capacity

Convergence in Finite Cournot Oligopoly with Social and Individual Learning

Convergence to Nash equilibrium in Cournot oligopoly is a problem that recurrently arises as a subject of study in economics. The development of evolutionary game theory has provided an equilibrium concept more directly connected with adjustment dynamics and the evolutionary stability of the equilibria of the Cournot game has been studied by several articles. Several articles show that the Walrasian equilibrium is the stable evolutionary solution of the Cournot game. Vriend (2000) proposes to use genetic algorithm for studying learning dynamics in this game and obtains convergence to Cournot equilibrium with individual learning. We show in this article how social learning gives rise to Walras equilibrium and why, in a general setup, individual learning can effectively yield convergence to Cournot instead of Walras equilibrium. We illustrate these general results by computational experiments.Cournot oligopoly; Learning; Evolution; Selection; Evolutionary stability; Nash equilibrium; Genetic algorithms

Learning the optimal buffer-stock consumption rule of Carroll

This article questions the rather pessimistic conclusions of Allen et Carroll (2001) about the ability of consumer to learn the optimal buffer-stock based consumption rule. To this aim, we develop an agent based model where alternative learning schemes can be compared in terms of the consumption behaviour that they yield. We show that neither purely adaptive learning, nor social learning based on imitation can ensure satisfactory consumption behaviours. By contrast, if the agents can form adaptive expectations, based on an evolving individual mental model, their behaviour becomes much more interesting in terms of its regularity, and its ability to improve performance (which is as a clear manifestation of learning). Our results indicate that assumptions on bounded rationality, and on adaptive expectations are perfectly compatible with sound and realistic economic behaviour, which, in some cases, can even converge to the optimal solution. This framework may therefore be used to develop macroeconomic models with adaptive dynamics.Consumption decisions; Learning; Expectations; Adaptive behaviour; Computational economics