An Evolutionary Theory Of Economic Change (belknap Press)

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This book contains the most sustained and serious attack on mainstream, neoclassical economics in more than forty years. Nelson and Winter focus their critique on the basic question of how firms and industries change overtime. They marshal significant objections to the fundamental neoclassical assumptions of profit maximization and market equilibrium, which they find ineffective in the analysis of technological innovation and the dynamics of competition among firms. To replace these assumptions, they borrow from biology the concept of natural selection to construct a precise and detailed evolutionary theory of business behavior. They grant that films are motivated by profit and engage in search for ways of improving profits, but they do not consider them to be profit maximizing. Likewise, they emphasize the tendency for the more profitable firms to drive the less profitable ones out of business, but they do not focus their analysis on hypothetical states of industry equilibrium. The results of their new paradigm and analytical framework are impressive. Not only have they been able to develop more coherent and powerful models of competitive firm dynamics under conditions of growth and technological change, but their approach is compatible with findings in psychology and other social sciences. Finally, their work has important implications for welfare economics and for government policy toward industry.

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RICHARD R. NELSON AND SIDNEY G. WINTER &M JEW(Q)ILlUJ1rll(Q)M&m2f 1rIHIJE(Q)m2f (Q)JF JECC(Q)M(Q)ItWllCC CCIHI&MCGIE THE BELKNAP PRESS OF HARVARD UNIVERSITY PRESS CAMBRIDGE~ MASSACHUSETTS~ AND LONDON, ENGLAND Copyright © 1982 by the President and Fellows of Harvard College All rights reserved Prin ted in the United Sta tes of America LIBRARY OF CONGRESS CATALOGING IN PUBLICATION DATA Nelson, Richard R. An evolutionary theory of economic change. Bibliography: p. Includes index. 1. Economics. 2. Economic development. 3. Organizational change. I. Winter, Sidney G. II. Title. III. Title: Economic change. HB71.N44 338.9'001 81-13455 AACR2 ISBN 0-674-27228-5 (paper) To KATHERINE GEORGIE MARGO JEFF LAURA KIT Preface WE BEGAN THIS BOOK over a decade ago. Our discussions of the promise and problems of evolutionary modeling of economic change date back years before that. For both of us, this book represents the culmination of work that began with our dissertations. Our initial orientations were different. For Nelson, the starting point was a concern with the processes of long-run economic devel­ opment. Early on, that concern became focused on technological change as the key driving force and on the role of policy as an influ­ ence on the strength and direction of that force. For Winter, the early focus was on the strengths and limitations of the evolutionary argu­ ments that had been put forward as support for standard views of firm behavior. This soon broadened to include the general method­ ological issues of "theory and realism" in economics, the contribu­ tions of other disciplines to the understanding of firm behavior, and reconsideration of the evolutionary viewpoint as a possible frame­ work for a more realistic economic theory of firm and industry be­ havior. FrOln the earliest days of our acquaintance, the existence of significant overlaps and interrelations between these areas of re­ search interest was apparent. Nelson's studies of the detailed pro­ cesses of technological change led him to appreciate the uncertain, groping, disorderly, and error-ridden character of those processes­ and the difficulty of doing justice to that reality within the orthodox theoretical scheme. In Winter's case, a study of the determin
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