2008,06: Evolutionary modelling in economics : a survey of methods and building blocks

In this paper we present an overview of methods and components of formal economic models employing evolutionary approaches. This compromises two levels: (1) techniques of evolutionary modelling, including multi-agent modelling, evolutionary algorithms and evolutionary game theory; (2) building blocks or components of formal models classified into core processes and features of evolutionary systems - diversity, innovation and selection - and additional elements, such as bounded rationality, diffusion, path dependency and lock-in, co-evolutionary dynamics, multilevel and group selection, and evolutionary growth. We focus our attention on the characteristics of models and techniques and their underlying assumptions. -- bounded rationality ; evolutionary algorithms ; evolutionary game theory ; evolutionary growth ; innovation ; multilevel evolution ; neo-Schumpeterian models

Agent-based modeling to integrate elements from different disciplines for ambitious climate policy

Ambitious climate mitigation policies face social and political resistance. One reason is that existing policies insufficiently capture the diversity of relevant insights from the social sciences about potential policy outcomes. We argue that agent-based models can serve as a powerful tool for integration of elements from different disciplines. Having such a common platform will enable a more complete assessment of climate policies, in terms of criteria like effectiveness, equity and public support. This article is categorized under: Climate Models and Modeling > Knowledge Generation with Models The Carbon Economy and Climate Mitigation > Policies, Instruments, Lifestyles, Behavior Policy and Governance > Multilevel and Transnational Climate Change Governance

Intergroup cooperation prevents resource exhaustion but undermines intra-group cooperation in the common-pool resource experiment

Can intergroup cooperation over resources help prevent resource exhaustion and mitigate effects of climate change? How does resource uncertainty affect inter- and intra- group cooperation over resources in the common-pool resource dilemmas? I present experimental evidence from a mixed design experiment with two-between-groups factors: (1) the availability of intergroup sharing in which subjects can decide whether to give up some of their harvests to augment the resource stock of another group; (2) the presence (or absence) of shocks that can destroy a part of resources; and with one within-groups factor (41 replications). We present the evidence that random shocks encourage resource conservation. In addition, we find that intergroup cooperation is frequent. Many groups establish reciprocal exchanges of resources, which reduces the probability of resource exhaustion. The possible explanation of the high frequency of intergroup sharing in my sample is inequality aversion and reciprocity. Such reciprocal exchanges turned out to be successful in preventing resource collapse in the absence of shocks. However, the data I present show the dark sides of intergroup sharing. Subjects, who shared resources with the outgroup, harvested more for themselves following the donation. Moreover, under uncertainty, a combination of shocks and sharing made subjects overharvest resources

The leakage effect may undermine the circular economy efforts

Abstract In this paper, we examine the impact of the circular economy on global resource extraction. To this end, we make an input–output analysis dynamic by combining it with an agent-based model of the capital sector. This approach allows us to study the evolution of the circular economy due to the endogenous decisions of firms on whether to invest in the capital expansion of primary or secondary sectors. Previous studies have examined the macroeconomic effects of the circular economy using scenarios that exogenously impose higher recycling rates, improved resource efficiency, or lowered demand on the economy. Such studies typically assume static consumer budgets, no price adjustments, capital investments in recycling infrastructure, or technological innovation. We relax these assumptions in a novel agent-based input–output model (ABM-IO). We show that the circular economy can significantly reduce the extraction of iron, aluminum, and nonferrous metals if implemented globally. However, the leakage effect may also cause some metal-intensive industries to relocate outside the EU, offsetting the circular economy efforts. The risk of the leakage effect is especially high for copper

Beyond replicator dynamics: Innovation-selection dynamics and optimal diversity

We propose a new evolutionary approach to model technological change based on an extension of replicator dynamics with recombination and mutation. It gives rise to interactive innovation-selection dynamics. The model allows studying the combined effects of selection and variety generation on evolutionary-economic change. The developed framework describes a population of boundedly rational entrepreneurs who decide each period on the allocation of investments in different production technologies. They tend to invest in below-average cost technologies, just as under replicator dynamics. In addition, they spend a constant fraction of investments, captured by mutation and recombination rates, on alternative technologies and research on recombinant innovation. As opposed to most previous studies, mutation and recombination are here conceptual variables with a concrete behavioral interpretation, namely describing the decision rules (heuristics) of investors. We compare the dynamics of shares of investments in various technologies for three cases: with constant costs of capital, with costs decreasing steadily and exogenously over time, and with costs depending on the level of cumulative investments. For each model version, we examine under which conditions the coexistence of technological options is feasible and optimal in terms of minimizing the average cost of investments.Bounded rationality Induced technological change Investment theory Learning curve Optimal diversity Recombinant innovation Replicator dynamics

Industry evolution, rational agents and the transition to sustainable electricity production

Guiding a transition to low carbon electricity requires a good understanding of the substitution of old by new technologies in the electricity industry. With the aim of explaining historical change from coal to gas in the British electricity industry, we develop a formal model of technological change, where energy technologies diffuse through the construction of new power plants. We considered two model versions: with rational and boundedly rational investors. In each model version, we look at the causal relations between price and output setting mechanisms, fuel and labour use, and investment decisions for different institutional arrangements. We quantify model parameters on data for the United Kingdom. We find that the version of the model with rational investors is capable of replicating well core features of UK electricity history. This includes a rapid diffusion of gas in electricity production, the evolution of the average size of newly installed plants, and a high percentage of electricity sales covered by (forward) contracts-for-difference. In this model setting, nuclear and renewable energies have no chance to diffuse on the market. In the version of the model with boundedly rational investors, nuclear power typically dominates electricity production. We discuss implications of our modelling results for making a transition to low carbon electricity in the future.Electricity Endogenous investments Low carbon economy

Towards monitoring a socio-ecological transition

WWWforEurope Deliverable No. 7, 58 pages The achievement of individual well-being while guaranteeing a sustainable development path represents an important objective of a socio-ecological transition. This objective indicates that targets referring to the economic, social and environmental dimensions are taken into account simultaneously. However, so far too little attention has been paid to the problems and opportunities of monitoring such a transition process. The identification of building blocks derived from the WWWforEurope project’s vision for Europe in 2050 allows attaining measurability and hence breaking down the complexity inherent in the transition objective. Based on the distinction between the environmental, social and economic dimensions, synergies and trade-offs are derived and analysed indicating possible conflicts between the aspects of the three dimensions. The investigation of those conflicts reveals to be highly important for detecting progress in the transition process. This deliverable introduces a new approach for designing a tool for monitoring a socio-ecological transition. However, more research is needed to be able to bring the tool into action. In particular, a more detailed elaboration of the synergies and trade-offs would improve the accuracy of the monitoring tool

Evolving power and environmental policy: Explaining institutional change with group selection

This paper presents a theory of institutional change that builds upon a synthesis of theoretical insights from the literatures on group selection and socio-economic power. Based on a critical reading of relevant studies in sociology, political science and philosophy, we propose a taxonomy of power comprising different sources and mechanisms of exercising power. We discuss how these can be incorporated in a group selection framework to explain the evolution of environmental institutions and policies. This may improve our understanding of the feasibility, effectiveness and dynamics of the latter.Coevolution Environmental policy Evolution Group selection Institutions Socio-economic power