Statistical Regularities in the Evolution of Industries. A Guide through some Evidence and Challenges for the Theory

Fundamental drivers of the evolution of contemporary economies are the activities of search, discovery and economic exploitation of new products, new production processes, new organizational arrangements within and amongst business firms. What are their marks in terms of statistical properties that such processes display? Three basic questions in particular are addressed in this work. First, are there distinct characteristics of the microentities (in primis, business firms) and their distributions which systematically persist over time? Second, how do such characteristics within the population of competing firms affect their relative evolutionary success over time? And in particular what are the ultimate outcomes in terms of growth and profitability performances? Third, amongst the foregoing statistical properties and relations between them, which ones are invariant across industries, and, conversely, which ones depend on the technological and market characteristics of particular sectors? In order to address these questions we proceed in a sort of “inductive” manner. I start by examining some basic features of the distributions of firms sizes, growth rates and profitability. Next, I consider some evidence on the underlying inter-firm heterogeneity - particularly with regard to technological innovativeness and productivity - and their relationships with corporate performances. Finally, the work recalls the basic elements of an evolutionary interpretation of the evidence. Together with important points of corroboration of such a view - including those regarding a profound heterogeneity of firms at all levels of observation -, one also facing standing challenges - in primis, concerning the purported role of markets as effective selection devices -.Industrial evolution, Size distributions, Growth rates, Heterogeneity, Fat tails, Market selection

A Very Reasonable Objective Still Beyond Our Reach: Economics as an Empirically Disciplined Social Science

The paper discusses some fundamental features of the 'Simonian' research program in microeconomics and compare them with two streams of thought which find their roots into Simon's pathbreaking work since the '50s and '60s, namely Transaction Cost Economics and Evolutionary Economics. One argues that the latter is in a particularly promising position to advance toward the kind of empirically disciplined microeconomics advocated by Herbert Simon. It does so also through painstaking attempts to operationalize the notion of 'bounded rationality' - in the broadest sense -, to make bridges with the microevidence from other social sciences - e.g. cognitive and social psychology, etc.-, and to "open up the organizational blackbox". And all that is undertaken outside the straightjacket of any religious committment to equilibrium analysis.Herbert Simon; Evolutionary Economics; Transaction Cost Economics; Bounded Rationality; Organization.

Technological innovation, institutions and human purposefulness in socioeconomic evolution: A preface to Christopher Freeman "Systems of Innovation. Selected Essays in Evolutionary Economics"

Christopher Freeman; National Systems of Innovation; Techno-economic paradigms; Variety of capitalisms; Political economics; Evolutionary Economics

Environmental Innovation, War of Attrition and Investment Grants

The paper analyses the timing of spontaneous environmental innovation when second-mover advantages, arising from the expectation of declining investment costs, increase the option value of waiting created by investment irreversibility and uncertainty about private payoffs. We then focus on the design of public subsidies aimed at bridging the gap between the spontaneous time of technological change and the socially desirable one. Under network externalities and incomplete information about firms’ switching costs, auctioning investment grants appears to be a cost-effective way of accelerating pollution abatement, in that it allows targeting grants instead of subsidizing the entire industry indiscriminatelyEnvironmental innovation, Investment irreversibility, Network externalities, Investment grants, Second-price auction.

Licences, "Use or Lose" Provisions and the Time of Investment

Exclusive rights granted by public authorities, like concessions to develop natural resources or electromagnetic spectrum licences, often have option-like features. However, to avoid licences being unused for lengthy periods, regulators sometimes set time limits, after which the exclusive right of exercise may be revoked. In this paper we analyse the impact of use or lose ("UOL") provisions upon the private time of investment. We find that the risk of losing the licence because of inaction generally increases the probability of early investment. However, when capital costs are expected to decline over time, UOL provisions may involve a "perverse effect", by increasing, rather than reducing, the expected time of investment, with respect to a situation where the date of investment is left entirely to the licencee’s discretion.Licences, Real Options, Use or Lose Provisions, Time of Investment

On the tangled discourse between transaction costs economics and competence-based views of the firms: Some comments

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On the Convergence of Evolutionary and Behavioral Theories of Organizations: A Tentative Roadmap

The behavioral theory of the firm has been acknowledged as one of the most fundamental pillars on which evolutionary theorizing in economics has been built. Nelson and Winter’s 1982 book is pervaded by the philosophy and concepts previously developed by Cyert, March and Simon. On the other hand, some behavioral notions, such as bounded rationality, though isolated from the context, are also at the heart of some economic theories of institutions such as transaction costs economics. In this paper, after briefly reviewing the basic concepts of evolutionary economics, we discuss its implications for the theory of organizations (and business firms in particular), and we suggest that evolutionary theory should coherently embrace an “embeddedness” view of organizations, whereby the latter are not simply efficient solutions to informational problems arising from contract incompleteness and uncertainty, but also shape the “visions of the world”, interaction networks, behavioral patterns and, ultimately, the very identity of the agents. After outlining the basic features of this perspective we analyze its consequences and empirical relevance.

Competing Technologies, Technological Monopolies and the Rate of Convergence to a Stable Market Structure

Empirically the diffusion of competing technologies most often displays either "lock-in" to a quasi-monopoly or apparent turbulence but rarely stable market-sharing. In contrast with widespread views, we show that, first, unbounded increasing returns are neither necessary nor sufficient to lead to technological monopolies. Rather, asymptotic patterns depend on the relative impact of increasing returns and the degree of adopters heterogeneity. Second, the unlikely empirical occurence of stable market-sharing is slower then to monopoly; thus, in the former case, the enviroment often changes before the market-share trajectory becomes stable.Product selection; unbounded returns; network externalities; heterogeneity

Income Levels and Income Growth. Some New Cross-Country Evidence and Some Interpretative Puzzles

This work brings together two distinct ensembles of evidence concerning, at macro level, international distributions of incomes and their dynamics, and, at micro level, the size distributions of firms and the properties of their growth rates. Together, we also consider an intermediate level of observation, namely the properties of sectoral growth. First, our empirical analysis provides a fresh look at the international distri-butions of incomes and growth rates by investigating more closely the relationship between the two entities and the statistical properties of the growth process. Second, we try to identify those statistical properties which are invariant with respect to the scale of observation (country, sector or firm) as distinct from those that are instead scale specific. This exercise puts forward a few major interpretative challenges regarding the correlating processes underlying the statistical evidence.International Distribution of Incomes, International Growth Rates, Scaling Laws, Growth Volatility, Exponential Tails

The patterns of output growth of firms and countries: new evidence on scale invariances and scale specificities

This work brings together two distinct pieces of evidence concerning, at the macro level, international distributions of incomes and their dynamics, and, at the micro level, the size distributions of firms and the properties of their growth rates. First, our empirical analysis provides a new look at the international distribu- tions of incomes and growth rates by investigating more closely the relationship between the two entities and the statistical properties of the growth process. Second, we identify the statistical properties that are invariant with respect to the scale of observation (country or firm) as distinct from those that are scale specific. This exercise proposes a few major interpretative challenges regarding the correlating processes underlying the statistical evidence.International distribution of income, international growth rates, firm growth, scaling laws, growth volatility, exponential tails