Technological regimes and paradigms:
a core concept of evolutionary
economics
ESST Module 4: Unit 2
Andreas Reinstaller
Remember? The three central question in
economics and how Neoclassical economics
approaches them
Central questions:
“How is economic
activity coordinated?”
“What explains
prices?”
“How is wealth
created and
redistributed?”
 Neoclassical approach:
 Coordination: Markets
coordinate. Is a market in
equilibrium all production and
consumption plans correspond.
There is perfect coordination
 Prices: Utility and profit
maximization under full
information leads that prices
embody all information on
intrinsic evaluation of goods by
consumers and production costs
 Growth: Economy as a whole is
in a continued but moving
equilibrium which is brought
about by the coordination
mechanisms.
Evolutionary Economics: Competition
as an evolutionary process
Biology
Economics
Fitness
Profitability
Genes
Routines
Phenotypes
Firms
Selection
Competition
Cross-over
Learning,
innovating
Mutation
Inventing
Unit of Selection: Firm
Bounded rationality: firms and other
economic agent may act rationally, but
within limits.
Technologies are complex systems
 Coordination: frequency
adjustment on the population
level. Firms that are not adapted
to the social environment/market
on which they act will leave the
industry, while others may enter.
 Prices: reflect intensity of
competition on the market, costs,
accumulation levels and the
growth of demand of the market
 Growth: Competition drives the
innovation process, which in turn
generates growth.
The representation of technological and
organizational learning: rational and bounded
rational choices
Evaluation
logical
Incrementalism
(evolutionary)
cognitive
representations
(evolutionary)
local
experimentation
(evolutionary)
rational
(neo-classical)
model
Location on the fitness landscape
Local
Distant
From G. Gavetti and D.Levinthal (2000),in: ASQ, vol. 45, p. 116
Technology as a complex system: well
behaved production sets vs. rugged
technological landscapes
A rugged (evolutionary)
technology landscape
5
Fitness
4
3
2
1
0
Fitness
-1
10
10
8
5
6
4
0
2
0
0.62
0.6
8
0.58
6
0.56
A smooth (Neoclassical)
technology landscape
2
4
4
6
2
8
Technological interdependence:
Local search and lock-in
a)
101
111
(0.23)
(0.3)
b)
101
111
(0.4)
(0.46)
110
(0.23)
100
(0.16)
N=3 K=0
100
(no links)
(0.36)
110
N=3 K=1
(0.43)
I1 I2 I3
I1 I2 I3
011
011
(0.53)
(0.23)
001
001
000
(0.16)
010
(0,1)
1 2 3 f1
(0.16)
f2
f3
F
000
(0.6)
010
(0.53)
1 2 3 f1
(0.56)
f2
f3
F
0 0 0 0.1 0.1 0.1 0.1
0 0 0 0.4 0.8 0.4 0.53
0 0 1 0.1 0.1 0.3 0.16
0 0 1 0.9 0.8 0.1 0.6
0 1 0 0.1 0.3 0.1 0.16
0 1 0 0.4 0.5 0.8 0.56
1 0 0 0.3 0.1 0.1 0.16
1 0 0 0.3 0.4 0.4 0.36
0 1 1 0.1 0.3 0.3 0.23
0 1 1 0.9 0.2 0.3 0.46
1 0 1 0.3 0.1 0.3 0.23
1 0 1 0.7 0.4 0.1 0.4
1 1 0 0.3 0.3 0.1 0.23
1 1 0 0.3 0.2 0.8 0.43
1 1 1 0.3 0.3 0.3 0.3
1 1 1 0.7 0.2 0.3 0.4
Implication: Even if
a firm would know all
available routines and
dispose over all possible
skills, technological
interdependence may lead
to solutions that from a
purely technical and
economic standpoint are
suboptimal.
From: Reinstaller and Hölzl (2002), The Babbage Principle after Evolutionary Economics:
On the complex roots of labour displacing technical change, submitted paper.
Technological Paradigms: the core
concept of evolutionary economics
 What is a paradigm?
“A model and a pattern of solution of
selected technological problems,
based on selected principles
derived from natural sciences and
on selected material
technologies”, Dosi (1982), p.152
 Within a paradigm problem
solving behaviour is developed:
The selected principles generate
routines, heuristics (more later).
Together they constitute relevant
knowledge.
 Technological regimes:
Depending on the selection
environment and the underlying
technology industrial sectors will
show specific patterns of
development (more later)
 Technological trajectories.
Once a paradigm is chosen, the
technological artefacts developed
within this paradigm are
improved. This improvement
pattern is a technological
trajectory.
Generating new Knowledge. How did the economic
mainstream try to overcome some of the
shortcomings of its Growth theory? A recap of
Endogenous Growth theory.
 Remember the variable “A” in
previous lecture.
 Human capital models explain
A, through previously
accumulated human capital of a
nation -> explains growth
differentials between developed
and less developed countries.
 R & D models: same as above,
but instead of having fuzzy human
capital we have quality ladder due
to R & D: countries investing
more in R & D have higher growth
 Learning by doing models:
past levels of investment
(accumulation) trigger a learning
effect.
 Critique
 Human Capital: The notion of
Human Capital alone does not
take into account the complex
dynamics of learning and
knowledge creation. If we
want to understand the
process of growth we need to
look at learning processes
 R & D: linear STI model (see
later)
 Learning by doing: just a small
extension to “Solow” model.
But does not remarkably
improve the empirical
performance of the model.
Generating new knowledge. What
is knowledge? A definition.
Knowledge is structured information on
a system or a subset of its elements that
allows to predict the behaviour of that
system. This entails a process of
structuring information during which
elementary pieces of information on
the system are put into causal relation
with each other, and a hierarchy of
causal relations is set up.
From: A.Reinstaller (2002), “The use of Genetic Programming in Evolutionary Economics
by Bernd Ebersberger and Andreas Pyka. A note.”, manuscript (referee report)
Generating new knowledge. What is
knowledge? Different types.
Aristotle’s knowledge
taxonomy: Knowledge has
been at the centre of analytical
interest from the very
beginning of civilisation.
 Epistèmè: knowledge that is
universal and theoretical:
"know-why."
 Technè: knowledge that is
instrumental, context-specific
and practice-related: "knowhow."
 Phronesis: Knowledge that is
normative, experience-based,
context-specific and related to
common sense: "practical
wisdom."
 Knowledge has been divided
into four categories (Lundvall
and Johnson, 1994):
 Know-what: knowledge about
“facts”.
 Know-why: knowledge about
principles and laws of motion
in nature, in the human mind
and in society.
 Know-how: skills – i.e. the
ability to do something.
 Know-who: involves
information about who knows
what and who knows what to
do (network knowledge).
On the location of knowledge
 Person:
Substantive and procedural
Skills
Formal knowledge
 Organizational routines
and heuristics
Combination of
They are the “genes” of
the evolutionary process
 Embedded in individuals
 Embedded in
organisations and
institutions (shared
codes of communication,
shared routines, shared
methods for problem
solving and searching) .
 Knowledge is tacit or
codified
Tacit knowledge cannot
be easily transfered. -> No
Blueprint character.
Even codified knowledge
cannot always be easily
transfered -> absorptive
The characteristics of technological
knowledge
 Technological knowledge has characteristics of a public good, i.e.
non-rivalry and non-excludability make it easily accessible to others
 Uncertainty: it is difficult to assess further developments and
market opportunities
 Cumulativeness: it builds on previous knowledge
 This has also an advantage: it generates externalities and
spillovers (i.e. the social rate of return is higher than the private
one)
 The disadvantage is that it may lead to underinvestment, hence
some protection is needed (attained by patent protection, industrial
secrecy...)
Operationalising the concept of technological
paradigms: technological regimes and trajectories, or
what’s the effect on an industry?
 A Technological Regime is a particular combination of:
 opportunity conditions (scarce or pervasive)
 appropriability conditions (high or low appropriability)
 cumulativeness (dependence on previous technological
achievements)
 knowledge base (degree of taciteness and complexity, i.e. relieance
one or several different sciences and knowledge bases)
 These factors determine development path, the technological
trajectory, of each single technology in the regime.
 This gives rise to specific development patterns of industries, as it
has an influence on
 Competition in that industry
 The Market structure in that industry
 Technical change in that industry
 A technological regime is the manifestation of technological
paradigms.
Technological regimes: The extreme cases:
Schumpeter Mk. I, Schumpeter Mk II
 There are roughly two distinct regimes that are distinguished:
 Schumpeter Mark I:
 high opportunity
 low appropriability
 low cumulativeness
 example: machine tool or mechanical industries
 Schumpeter Mark II:
 high opportunity
 high appropriability
 high cumulativeness
 example: chemicals, electronics
Assessing EE and Scot: Characteristics of
evolutionary processes
 Processes which generate variation in the pool of
characteristics in a population
 Processes which restrict and guide possible patterns
of variation in behaviour
 Processes which change the relative frequency of
different entities within the population
 Processes which determine the rate at which the
above three processes change
 Processes which determine the overall direction of
evolutionary change
Source: Metcalfe, J.S. (1998), Evolutionary Economics and Creative Destruction, London, p. 23
Relating Evolutionary Economic
Theory to SCOT, I
SCOT
 Unit of analysis: social actors
(individual, company, institution,
government…) grouped into
relevant social groups for the
development of a technology
 Inducement to engage into
research: problems in society
 Generation of variety: different
technological communities
produce solutions, or “facts” that
are channeled into the pool of
possible solutions
 Selection mechanisms: value set
of a society (e.g. religion) in
filtering relevant problems,
relevant social groups select the
final design.
 Main conclusion: technologies
are socially constructed
EE
 Unit of analysis: business firm
grouped into industries
 Inducement to engage into
research: technological
opportunity; “need is the mother
of invention” view is partially
rejected.
 Selection mechanism: market.
Firms that are better adapted to
social circumstances (embodied in
characteristics of demand)
survive. (genotype: routines,
phenotype: firm)
 Main conclusion: economic
development is a evolutionary
process in which better adapted
firms survive. What makes it
better adapted is left open ->
SCOT is here complementary
Relating Evolutionary Economic
Theory to SCOT, II
By Marc Dijk (2001),
A generic process-model of
science and technology
development, ESST 2001,
term paper, Maastricht.
General conclusion comparison
SCOT - EE
The two approaches are complementary, as
both are evolutionary! SCOT explains parts of
the problem which are not explained by EE, i.e.
it provides an accurate description of the
“selection” environment in which business firms
and industries act. EE explores how the
evolutionary selection mechanism actually acts
upon business firms. The focus of EE is
narrower as it lies on the exploration of the
dynamics of the creation of wealth, and is not
interested in problems of wider concern.