Elsner / Heinrich / Schwardt The Microeconomics of Complex Economies

Evolutionary, Institutional, Neoclassical, and Complexity Perspectives
1. Auflage 2014
ISBN: 978-0-12-411599-6
Verlag: Elsevier Science & Techn.
Format: EPUB
Kopierschutz: 6 - ePub Watermark

E-Book, Englisch, 600 Seiten

The Microeconomics of Complex Economies uses game theory, modeling approaches, formal techniques, and computer simulations to teach useful, accessible approaches to real modern economies. It covers topics of information and innovation, including national and regional systems of innovation; clustered and networked firms; and open-source/open-innovation production and use. Its final chapter on policy perspectives and decisions confirms the value of the toolset. Written so chapters can be used independently, the book includes an introduction to computer simulation and pedagogical supplements. Its formal, accessible treatment of complexity goes beyond the scopes of neoclassical and mainstream economics. The highly interdependent economy of the 21st century demands a reconsideration of economic theories. - Describes the usefulness of complex heterodox economics - Emphasizes divergences and convergences with neoclassical economic theories and perspectives - Fits easily into courses on intermediate microeconomics, industrial organization, and games through self-contained chapters

Wolfram Elsner is professor of economics with the Institute for Institutional and Innovation Economics at the University Bremen in Germany. Before working in academia, he spent ten years as a local development official and state-level planner. He has published widely in various journals, has edited several books, and authored three textbooks. He is the managing editor of the Forum for Social Economics and has served as the President of the European Association for Evolutional Political Economy.

Autoren/Hrsg.

Elsner, Wolfram

Heinrich, Torsten

Schwardt, Henning

Inhaltsverzeichnis

1;Front Cover;1
2;The Microeconomics of Complex Economies;4
3;Copyright Page;5
4;Dedication;6
5;Contents;8
6;Preface: A Complexity Microeconomics, “Post-Crisis”;10
6.1;Economics after 2008;10
6.1.1;Lingering Crises, Increased Socioeconomic Volatility, and the Struggle for Answers;10
6.1.2;Noncomplex Advice for Complex Problems?;11
6.1.3;What Is Neoclassical “Mainstream” Economics—And Does It Still Exist?;12
6.1.4;A “Cognitive Dissonance”?;13
6.1.5;A “Ruling Mainstream” and a “Pluralist” Approach to Teaching;13
6.1.6;Complexity Economics for Complex Problems? The Secular Quest for New Microfoundations;14
6.1.7;The Ideal “Market,” the Real-World Market, Embedded in Its Counter-Principles, and a Mixture of Allocation Mechanisms;14
6.1.8;Nobel Prizes for Such a Microperspective;15
6.1.9;Revising Basic Assumptions, Closing the Gap Between “Doing” and Teaching;16
6.1.10;Toward a Broader Problem Solving …;16
6.1.11;A New Teaching: Redrafting and Recrafting Microeconomics…;16
6.2;About This Textbook;17
6.2.1;Guidelines of the Textbook;17
6.2.2;Its Overall Structure and Content;18
6.2.3;Some Points in Particular;18
6.2.4;Its Competition;20
6.3;References;21
7;Acknowledgments;24
8;About the Authors;26
9;Didactics: How to Work with This Textbook at Introductory, Intermediate, and Advanced Levels, and in Different Kinds of Courses;28
9.1;Beyond the “Economics of the x”: A Different Task, a Different Style;28
9.2;Sample Syllabi: Roadmaps for Teaching in Different Formats;29
9.3;Prerequisites for Particular Parts;30
9.4;Reference;30
10;List of Abbreviations;32
11;I: Basics of the Interdependent Economy and Its Processes;34
11.1;1 Introduction to the Microeconomics of Complex Economies;36
11.1.1;1.1 Introduction: A Microeconomics of Direct Interdependence;38
11.1.2;1.2 Different Problem Structures in Directly Interdependent Decision Situations;38
11.1.2.1;1.2.1 Degree of Conflict;38
11.1.2.2;1.2.2 Rationality and Optimality;38
11.1.2.3;1.2.3 Pareto Criterion;39
11.1.2.4;1.2.4 Social Optima and Social Dilemmas;39
11.1.2.5;1.2.5 Coordination Problems;39
11.1.3;1.3 Competing Paradigms in Economics: Invisible Hand Versus Fallacy of Aggregation;40
11.1.3.1;1.3.1 The Invisible-Hand World View;40
11.1.3.2;1.3.2 The Fallacy-of-Aggregation World View;40
11.1.3.3;1.3.3 A Continuum of Complex Decision Structures;41
11.1.4;1.4 Uncertainty, Strategic Uncertainty, and Bounded Rationality;41
11.1.4.1;1.4.1 Uncertainty and Expectations;41
11.1.4.2;1.4.2 Behavioral Patterns;42
11.1.4.3;1.4.3 Bounded Rationality;42
11.1.5;1.5 Path Dependence, Nonergodicity, and Cumulativity in Processes of Change;43
11.1.5.1;1.5.1 Path-Dependent and Nonergodic Process;43
11.1.5.2;1.5.2 Complexity and Cumulative Process;43
11.1.6;1.6 Social Rules as Informational and “Expectational” Devices;44
11.1.6.1;1.6.1 Social Rules;44
11.1.6.2;1.6.2 Satisficing;44
11.1.6.3;1.6.3 Common Knowledge;44
11.1.6.4;1.6.4 Enabling Action;44
11.1.6.5;1.6.5 Stable Systems of Interconnected Rules;45
11.1.7;1.7 Social Rules and Social Institutions as Solutions to Coordination and Dilemma Problems;45
11.1.7.1;1.7.1 Recognizing Different Problem Structures;45
11.1.7.2;1.7.2 Coordination Problems and Dilemma Problems, Coordination and Cooperation, Rules and Institutions;46
11.1.7.3;1.7.3 Sacrifice and Sanction, Repeated Interaction and Time Horizon;46
11.1.7.4;1.7.4 “Common” and “Collective”;47
11.1.7.5;1.7.5 Costs as Opportunity Costs;47
11.1.7.6;1.7.6 Incomplete Contracts, Reciprocity, and Trust;47
11.1.7.7;1.7.7 Transforming and Solving a Social Dilemma;48
11.1.8;1.8 The Public Good Character and Positive External Effects of Social Rules and Social Institutions;48
11.1.8.1;1.8.1 Types of Goods: Private and Collective;48
11.1.8.2;1.8.2 Decision Situations and Rules and Institutions as Systems of Externalities;49
11.1.8.3;1.8.3 Network Externalities and Increasing Returns to Scale of Institutions;50
11.1.8.4;1.8.4 Degeneration of Institutions and Institutional Lock-In;50
11.1.8.5;1.8.5 A Variety of Institutional Systems Including “Markets” as Sets of Institutions;50
11.1.9;1.9 “Instrumental” and “Ceremonial” Dimensions of Social Institutions;51
11.1.9.1;1.9.1 Life Cycle and Degeneration of Institutions;51
11.1.9.2;1.9.2 Ceremonial Value and Motivation: Power and Status;51
11.1.9.3;1.9.3 Coordination and Change;52
11.1.10;1.10 Real-World Microeconomics;52
11.1.10.1;1.10.1 Assessing Different Complex Decision Situations;52
11.1.10.2;1.10.2 Integrating Direct Interdependence;53
11.1.10.3;1.10.3 Integrating Uncertainty;53
11.1.10.4;1.10.4 Reducing Uncertainty in the Corporate World Through Power and Control;53
11.1.10.5;1.10.5 Integrating Social Rules and Social Institutions;54
11.1.10.6;1.10.6 Integrating Institutional Change and Petrifaction;54
11.1.10.7;1.10.7 “Markets” as Widely Differing Sets of Institutions;55
11.1.10.8;1.10.8 Looking Behind the Veil of Everyday Solutions;55
11.1.10.9;1.10.9 What is Microeconomics? … and the Next Step;55
11.1.11;Further Reading;55
11.1.12;Further Reading—Online;56
11.2;2 Tools I: An Introduction to Game Theory;58
11.2.1;2.1 Introduction;58
11.2.2;2.2 Understanding a Strategic Game;59
11.2.3;2.3 The Invisible Hand and the Fallacy of Aggregation Again;60
11.2.4;2.4 How Not to Play a Game;62
11.2.4.1;2.4.1 Pareto Dominance;62
11.2.4.1.1;Pareto Optimality and Suboptimality;62
11.2.5;2.5 How to Play a Game;62
11.2.5.1;2.5.1 Dominance;62
11.2.5.2;2.5.2 Best Answers;63
11.2.5.3;2.5.3 Nash Equilibria;64
11.2.6;2.6 How Many Games Can We Play?;64
11.2.7;2.7 Summary;64
11.2.8;Chapter References;65
11.2.9;Further Reading;65
11.2.10;Further Reading—Online;65
11.2.11;Exercises;65
11.3;3 Problem Structures and Processes in Complex Economies;66
11.3.1;3.1 A Continuum of Social Problem Structures;67
11.3.1.1;3.1.1 An Invisible Hand at Work: A Social Optimum Structure;67
11.3.1.2;3.1.2 A Simple Coordination Problem;68
11.3.1.3;3.1.3 Another Coordination Problem: Assurance;68
11.3.1.4;3.1.4 Assurance Extended: Stag Hunt and the Problems of Trust and Signaling;69
11.3.1.5;3.1.5 Coordination with Asymmetric Interests: Battle of the Sexes;70
11.3.1.6;3.1.6 An Anti-Coordination Problem: Hawk-Dove;71
11.3.1.7;3.1.7 A Social Dilemma Problem, and Public Goods and Commons;72
11.3.2;3.2 Solutions to Social Dilemma Problems;73
11.3.2.1;3.2.1 Transformation of the Problem Structure: Supergames and Single-Shot Solution;75
11.3.2.2;3.2.2 The Population Perspective;81
11.3.2.3;3.2.3 Agency Mechanisms;82
11.3.2.4;3.2.4 Institutionalization and Habituation of Cooperative Behavior: Rationally Rule-Behaving;84
11.3.3;Further Reading;87
11.3.4;Further Reading—Online;87
11.3.5;Exercises;87
11.4;4 Approaching Real-World Interdependence and Complexity: Empirical Phenomena in the Global Economy;90
11.4.1;4.1 Introduction;92
11.4.2;4.2 The Specific Inherent Complexity, Volatility, and Uncertainty of Today’s Real-World Economy;93
11.4.2.1;4.2.1 The “Organized Capitalism Plus Welfare State and Proactive Policies,” 1930s Through 1970s: A Shaping Role for Social ...;93
11.4.2.2;4.2.2 “Market Deregulation” as the “Neoliberal” Response to the Complexity Challenge;95
11.4.2.2.1;Politico-Economic Paradigm Change, the Era of “Neoliberal” Deregulation, and its Outcomes;95
11.4.2.2.2;Deregulated Markets Are Not a General Cure—on Relevant Real-World Modeling;97
11.4.2.2.3;The Global Deregulated Economy in an “Institutional Disequilibrium”?;98
11.4.2.3;4.2.3 Fragmentation of the VACs and Technological Standardization;99
11.4.2.3.1;Spatial and Functional Fragmentation;99
11.4.2.3.2;A System of Externalities, Entailing “Inappropriability”;99
11.4.2.3.3;A Social Dilemma Involved;100
11.4.2.3.4;The Necessity of Technological Compatibility and Behavioral Coordination and Cooperation;100
11.4.2.3.5;An Example: Interaction with Service Providers and Customers;101
11.4.2.4;4.2.4 Digital Information, Competing Network Technologies, and Network Externalities;102
11.4.2.4.1;Digital Microelectronic Technologies of Tele-Communication and -Information, and Resulting Network Effects;102
11.4.2.4.2;Close-to-Zero Marginal Costs of Information Reproduction;102
11.4.2.4.3;Network Technologies and Network Externalities;103
11.4.2.4.4;A Game-Theoretic Example: A Three-Agent-Two-Technology Coordination Problem;104
11.4.2.4.5;Competing Network Technologies, Uncertainty, and Potential Blockage of Action;106
11.4.2.4.6;Incentives to Wait Versus Incentives to be the “First Mover”;106
11.4.2.4.7;“Basic Information” as a Collective Good: Sharing Knowledge in Fragmented VACs and on Network-Based Technologies;106
11.4.2.4.8;“Inappropriability” and “Open Source” as a Potential New General Economic Principle and as a Business Model;107
11.4.2.5;4.2.5 Network-Technology Choice as Path-Dependent Process;108
11.4.2.5.1;Technology Choice as a Path-Dependent Process: An Example of the Choice of a Computer Operation System;108
11.4.2.5.2;The Importance of Path Dependence and Cumulative Process in the Real World: The Case of Microsoft and the Market for PC Ope...;108
11.4.2.6;4.2.6 Interoperability—Standardization of Technologies and Behaviors, and the Roles of Collective Rationality and Public Po...;110
11.4.2.7;4.2.7 In All: A “Complexity Challenge”;111
11.4.3;4.3 Individualistic VS. Common and Collective, Strategies to Cope with Complexity;111
11.4.3.1;4.3.1 Power and Hierarchy, Hub&Spoke Clusters and Networks;111
11.4.3.1.1;“Power-Ization”: Hierarchy, Power, Collusion—Increasing Control to Compensate for Increased Turbulence;111
11.4.3.1.2;Hub&Spoke Networks;112
11.4.3.1.3;Hub&Spoke Clusters;113
11.4.3.2;4.3.2 Industrial Clusters and Networks in General;113
11.4.3.2.1;A Two-Stage Conception of Emergence;113
11.4.3.2.2;Clusters Tend to Outgrow the Market;114
11.4.3.2.3;More Deliberate Agreements: “Strategic Networks”;115
11.4.3.2.4;Open-Source Networks in Particular;115
11.4.3.3;4.3.3 Taking Stock;115
11.4.4;4.4 Implications of Real-World Complexity for Microeconomic Theory and Modeling;117
11.4.4.1;4.4.1 A More Integrative Picture;117
11.4.4.2;4.4.2 What Lies Ahead? The Following Parts of the Book;119
11.4.5;Chapter References;120
11.4.6;Further Reading—Online;124
11.4.7;Exercises;124
12;II: Markets: General-Equilibrium Theory and Real-World Market Structures;128
12.1;5 The Ideal Neoclassical Market and General Equilibrium;130
12.1.1;5.1 Introduction: The Neoclassical Paradigm and Research Program;131
12.1.2;5.2 Consumer Theory;133
12.1.2.1;5.2.1 Preferences;133
12.1.2.2;5.2.2 Utility, Maximization, and Demand;135
12.1.2.2.1;An Illustration;136
12.1.2.3;5.2.3 Marshallian Demand, Hicksian Demand, and the Slutsky Equation;138
12.1.3;5.3 Production Theory;139
12.1.3.1;5.3.1 The Production Function;139
12.1.3.2;5.3.2 Cost Minimization and Cost Functions;141
12.1.3.3;5.3.3 Profit Maximization;142
12.1.4;5.4 Partial Equilibrium;144
12.1.5;5.5 General Equilibrium;146
12.1.5.1;5.5.1 Welfare Theorems and Walras’ Law;146
12.1.5.2;5.5.2 Existence, Uniqueness, Stability, and the Sonnenschein–Mantel–Debreu Conditions;148
12.1.5.2.1;Existence;148
12.1.5.2.2;Uniqueness;149
12.1.5.2.3;Stability;149
12.1.5.2.4;Sonnenschein–Mantel–Debreu;149
12.1.6;5.6 Further Developments;150
12.1.6.1;5.6.1 Ramsey-Type Intertemporal Optimization;150
12.1.6.1.1;Investment;150
12.1.6.1.2;Optimization over an Infinite Time Horizon;151
12.1.6.2;5.6.2 The Ramsey–Cass–Koopmans Growth Model;151
12.1.6.3;5.6.3 New Classicals and New Keynesians—Microfoundations of Macroeconomics;152
12.1.7;5.7 Extensions and Transitions: The General Theory of the Second Best, Asymmetric Information, and Efficiency Under Imperfe...;154
12.1.7.1;5.7.1 The General Theory of the Second Best;154
12.1.7.2;5.7.2 Asymmetric Information—The Markets for Lemons;156
12.1.7.3;5.7.3 Efficiency and Imperfect Information;158
12.1.7.3.1;Externalities and Imperfect Information;159
12.1.8;Chapter References;160
12.1.9;Further Reading—Online;161
12.1.10;Exercises;161
12.2;6 Critiques of the Neoclassical “Perfect Market” Economy and Alternative Price Theories;162
12.2.1;6.1 Introduction;163
12.2.2;6.2 The Mistaken Mechanical Analogy;163
12.2.2.1;6.2.1 Classical Mechanics;164
12.2.2.2;6.2.2 From Substance to Field;165
12.2.2.3;6.2.3 The Fall of Classical Physics;166
12.2.2.4;6.2.4 The Mistaken Energy-Value Analogy;166
12.2.2.5;6.2.5 The Epistemic Break Between Classical and Neoclassical Economics;168
12.2.3;6.3 Internal Inconsistencies;169
12.2.3.1;6.3.1 The Impossibility of Horizontal Demand Curves for Individual Firms;169
12.2.3.2;6.3.2 The Impossibility of Simultaneously Independent Supply and Demand and of Upward-Sloping Supply Curves;170
12.2.3.3;6.3.3 Summing Up;172
12.2.4;6.4 Preferences and Choice;172
12.2.4.1;6.4.1 Problems with the “Revealed Preferences” Concept;172
12.2.4.2;6.4.2 Endogenous Preferences and Conspicuous Behavior;174
12.2.4.2.1;Endogenous Preferences;174
12.2.4.2.2;Conspicuous Behavior;176
12.2.4.3;6.4.3 Missing Procedural Aspects of Decision-Making;177
12.2.5;6.5 The Classical Theory of Prices and the Sraffian Critique of the Neoclassical Theory of Value and Price;179
12.2.5.1;6.5.1 Foundations of the Classical Theory of Prices;179
12.2.5.2;6.5.2 Sraffian Critique of Neoclassical Theory of Value and Price;180
12.2.5.3;6.5.3 A Classical One-Commodity Model After Sraffa;181
12.2.5.4;6.5.4 A Classical N-Commodity Model After Sraffa;182
12.2.6;6.6 An Outlook on Post-Keynesian and Institutional Price Theories: Setting and Administering Prices;183
12.2.7;6.7 Conclusion and Outlook;185
12.2.8;Chapter References;186
12.2.9;Further Reading;187
12.2.10;Further Reading—Online;188
12.2.11;Exercises;188
12.3;7 Real-World Markets: Hierarchy, Size, Power, and Oligopoly, Direct Interdependence and Instability;190
12.3.1;7.1 Real-World Phenomena Again, the Corporate Economy, and Oligopolistic Market Structure;191
12.3.1.1;7.1.1 Spatial Arenas, Deregulation, Complexity and Uncertainty, Coordination and Dilemma Problems;191
12.3.1.2;7.1.2 Hierarchy, Size Growth, “Power-Ization,” Oligopolistic Structure, and Persistent Industrial Variety;193
12.3.1.3;7.1.3 Proactive Firm Strategy and Planning—Connecting Hierarchy, Size, Power, and Oligopoly to the Theory of the Firm;193
12.3.1.4;7.1.4 Overview and Outlook;194
12.3.2;7.2 Factors Leading to Size, Power, and a Small Number of Interdependent Suppliers;195
12.3.3;7.3 Pure Monopoly;196
12.3.3.1;7.3.1 Price and Output in a Monopoly;197
12.3.3.2;7.3.2 The Welfare Effect of a Monopoly;200
12.3.4;7.4 Oligopoly;201
12.3.4.1;7.4.1 Cournot (Cournot–Nash) Oligopoly;202
12.3.4.1.1;Monopoly, Cournot–Nash Oligopoly, and Polypoly Prices and Quantities Compared;202
12.3.4.1.2;The Cournot–Nash Oligopoly as a Prisoners’ Dilemma—A Numerical Example;203
12.3.4.2;7.4.2 Bertrand Oligopoly;204
12.3.4.2.1;An Extension: Differences in Cost Structures;205
12.3.4.3;7.4.3 Stackelberg Oligopoly;205
12.3.5;7.5 Natural Monopoly;206
12.3.5.1;7.5.1 The Rationale for Natural Monopolies;206
12.3.5.2;7.5.2 Sustainability and Efficiency of the Natural Monopoly in a Contestable Market;207
12.3.5.2.1;The Case of Strict Subadditivity;208
12.3.5.2.2;The Case of Weak Subadditivity;208
12.3.5.3;7.5.3 Sustainability and Efficiency of the Natural Monopoly in a Market with Entry Barriers;208
12.3.5.3.1;The Case of Strict Subadditivity;208
12.3.5.3.2;The Case of Weak Subadditivity;209
12.3.6;7.6 Heterogeneous Oligopoly and Monopolistic Competition;209
12.3.6.1;7.6.1 From Homogeneous to Heterogeneous Oligopoly and to Monopolistic Competition;209
12.3.6.2;7.6.2 Sticky Prices in Oligopoly Markets: A Kinked Demand Curve;210
12.3.6.3;7.6.3 Heterogenization and Monopolistic Competition;210
12.3.7;7.7 Heterogeneous Oligopolistic and Monopolistic Competition: Opportunities for Strategic Behavior of Firms and Their Poten...;214
12.3.8;7.8 A Final Consideration of Firm Size and Power, Strategic Cooperation, Monopolistic Competition, and Real-World Markets;217
12.3.9;Chapter References;218
12.3.10;Further Reading—Online;219
12.3.11;Exercises;219
12.3.12;Solution Keys;219
13;III: Further Tools and the Analysis of Complex Economies;224
13.1;8 Tools II: More Formal Concepts of Game Theory and Evolutionary Game Theory;226
13.1.1;8.1 Introduction;227
13.1.2;8.2 Formal Concepts;228
13.1.2.1;8.2.1 Games;228
13.1.2.2;8.2.2 Agents and Decision Making;229
13.1.3;8.3 Concepts from Decision Theory;229
13.1.3.1;8.3.1 Maximax;230
13.1.3.2;8.3.2 Maximin and Minimax;230
13.1.3.3;8.3.3 Laplace Criterion;230
13.1.3.4;8.3.4 Hurwicz Criterion;230
13.1.3.5;8.3.5 Savage’s Minimax Regret;231
13.1.4;8.4 Solutions of Normal-Form Games;231
13.1.4.1;8.4.1 Dominance of Strategies;231
13.1.4.2;8.4.2 Nash Equilibrium;233
13.1.4.3;8.4.3 The Relation Between SESDS and Nash Equilibrium;234
13.1.4.4;8.4.4 Mixed Strategies;234
13.1.4.5;8.4.5 Nash Equilibrium in Mixed Strategies;235
13.1.4.6;8.4.6 Computation of the Nash Equilibrium in Mixed Strategies;238
13.1.4.7;8.4.7 Properties of the Nash Equilibrium in Mixed Strategies;239
13.1.4.8;8.4.8 Further Refinements: Trembling-Hand Equilibrium and Proper Equilibrium;240
13.1.5;8.5 Extensive Form Games;241
13.1.5.1;8.5.1 Extensive Form Notation;241
13.1.5.2;8.5.2 Complete Strategies;242
13.1.5.3;8.5.3 Backward Induction;242
13.1.5.4;8.5.4 Subgame Perfectness;243
13.1.6;8.6 Repeated Games;243
13.1.6.1;8.6.1 Repeated Games and Supergames;243
13.1.6.2;8.6.2 Rubinstein’s Proof of the Folk Theorem;245
13.1.7;8.7 Population Perspectives and Evolutionary Games;246
13.1.7.1;8.7.1 Evolutionary Approaches to Game Theory;246
13.1.7.2;8.7.2 Evolutionary Stability;247
13.1.7.3;8.7.3 Asymmetry in Evolutionary Game Theory;250
13.1.7.4;8.7.4 Replicator Dynamics;251
13.1.8;8.8 Rationality in Game Theory;254
13.1.9;8.9 Conclusion;254
13.1.10;Commented Game Theory Textbook References;255
13.1.11;Chapter References;256
13.1.12;Further Reading—Online;257
13.1.13;Exercises;257
13.1.14;List of Symbols;258
13.2;9 Tools III: An Introduction to Simulation and Agent-Based Modeling;260
13.2.1;9.1 Introduction;261
13.2.2;9.2 Method;263
13.2.3;9.3 Particular Issues in Computer Simulation;264
13.2.3.1;9.3.1 Computability;264
13.2.3.2;9.3.2 Entities;264
13.2.3.3;9.3.3 Numbers;264
13.2.3.4;9.3.4 Time;265
13.2.3.5;9.3.5 Randomness;265
13.2.3.6;9.3.6 Simplicity;265
13.2.3.7;9.3.7 Monte Carlo Simulations;266
13.2.4;9.4 Advantages and Disadvantages of Simulation;266
13.2.5;9.5 Microeconomics and Computer Simulation;267
13.2.5.1;9.5.1 Computer Simulation in Microeconomics;267
13.2.5.2;9.5.2 Homogeneous Versus Heterogeneous Agents;267
13.2.5.3;9.5.3 Simulating Games on Networks: The Example of the Prisoners’ Dilemma;268
13.2.6;9.6 Simulation in Practice: An Example;269
13.2.6.1;9.6.1 Some Preliminary Considerations;269
13.2.6.2;9.6.2 General Programming Concepts and Python Commands;271
13.2.6.3;9.6.3 Implementing a Simulation in Python;273
13.2.7;9.7 Outlook;279
13.2.8;Commented Textbook and Introductory Guide Reference;280
13.2.9;Chapter References;280
13.2.10;Further Reading;280
13.2.10.1;Further Texts on Simulation;280
13.2.10.2;Simulation Models in Economics;281
13.2.10.3;Particular Problems of Computer Simulation and Agent-Based Models in Economics;281
13.2.10.4;Simulation, Economics, and Society;281
13.2.10.5;Programs, Tools, and Platforms for Computer Simulation;281
13.2.11;Further Reading—Online;281
13.2.12;Exercises;281
13.3;10 A Universe of Economies: Interdependence and Complexity, System Trajectories, Chaos, and Self-Organization;284
13.3.1;10.1 Some Basics of Complexity Economics Versus Neoclassical Economics: Topology, Evolutionary Process, and Bounds and Barr...;285
13.3.1.1;10.1.1 The General Equilibrium Once Again;285
13.3.1.2;10.1.2 Agents in Real Space: Proximity and Distance, and the Neighborhood Structure;286
13.3.1.3;10.1.3 Knowledge, Rationality, Time: General Equilibrium and Evolutionary Process;287
13.3.2;10.2 Local and Global Information, the Neoclassical and the Complexity Economics Approaches, and Complex System Dynamics;290
13.3.2.1;10.2.1 Local and Global Information and Their Implications;290
13.3.2.2;10.2.2 Dynamics of a Linear System;291
13.3.2.3;10.2.3 Dynamics of a Nonlinear System;294
13.3.2.4;10.2.4 Chaotic and Complex Dynamics;295
13.3.2.5;10.2.5 General Properties of Dynamic Systems;296
13.3.2.6;10.2.6 Social Systems and Economic Space – A Local- and Direct-Interaction General Equilibrium?;299
13.3.3;10.3 A Quasi-Neoclassical Perfect-Equilibrium Model Based on Global Information and Direct Interdependence;301
13.3.3.1;10.3.1 An Optimal Lifetime Consumption Problem;302
13.3.3.2;10.3.2 A Quasi-Neoclassical “Market” with Consumption and Investment;303
13.3.4;10.4 A Policy Solution and the Emergent-Institutions Solution;305
13.3.4.1;10.4.1 Emergent Institutions with Policy;305
13.3.4.2;10.4.2 An Evolutionary Solution with Emergent Institutions Again;306
13.3.5;10.5 Conclusion;308
13.3.6;Chapter References;308
13.3.7;Further Reading—Online;309
13.3.8;Exercises;309
13.4;11 Dynamics, Complexity, Evolution, and Emergence—The Roles of Game Theory and Simulation Methods;310
13.4.1;11.1 Introduction;311
13.4.2;11.2 The Picture Becomes Complex;312
13.4.2.1;11.2.1 Increasing Complexity: A Sequence of Models;312
13.4.2.1.1;Model Extensions;316
13.4.2.2;11.2.2 Defining Complexity;317
13.4.2.3;11.2.3 Complexity in the Sequence of Models;321
13.4.3;11.3 Formal Aspects of Dynamic and Complex Systems;323
13.4.3.1;11.3.1 Dynamic Systems, Attractors, Ergodicity, Chaos, Path Dependence, and Other Concepts;323
13.4.3.1.1;Dynamic Systems;323
13.4.3.1.2;Phase Space;323
13.4.3.1.3;Trajectories;324
13.4.3.1.4;Fixed Points;324
13.4.3.1.5;Attractors;325
13.4.3.1.6;Limit Cycles;326
13.4.3.1.7;Ergodicity and Nonergodicity;326
13.4.3.1.8;Deterministic Chaos;326
13.4.3.1.9;Phase Transitions and Bifurcations;326
13.4.3.1.10;Path Dependence;327
13.4.3.2;11.3.2 Complex Dynamic Systems;327
13.4.3.3;11.3.3 Emergence;327
13.4.3.3.1;Historic Debates on Emergence and Reductionism;327
13.4.3.3.2;Definitions and Conditions of Emergence;328
13.4.3.4;11.3.4 The Surprised Observer;329
13.4.3.5;11.3.5 Assessing the Stability of Nonlinear Systems: Linearizing Jacobians;330
13.4.4;11.4 The Origins of Order, Turbulence, and Complexity;332
13.4.4.1;11.4.1 How Does Complexity Emerge?;332
13.4.4.2;11.4.2 Fractals, Complexity, and Emergence in the Real World;333
13.4.5;11.5 Modeling Complexity;334
13.4.6;11.6 Why Does it Matter: The Agent’s Struggle with Her Complex Environment;335
13.4.7;11.7 Conclusion;335
13.4.8;Chapter References;335
13.4.9;Further Reading;336
13.4.10;Further Reading—Online;336
13.4.11;Exercises;336
14;IV: History of Thought and Contemporary Models in Complexity Economics;338
14.1;12 Themes of Complexity in the History of Economic Thought: Glimpses at A. Smith, T.B. Veblen, J.A. Schumpeter, and Others;340
14.1.1;12.1 Introduction;342
14.1.1.1;12.1.1 The Use of Dealing with the History of Economic Thought;342
14.1.1.2;12.1.2 Complexity in HET: The Example of Unintended Consequences and the Scottish Enlightenment;343
14.1.1.3;12.1.3 Unintended Consequences Within a System of Emerged Social Institutions, and the Importance of Formal Institutional A...;343
14.1.2;12.2 Adam Smith: The Classical Model of the Origins and Emergence of Institutions, and The Modern Significance of the Class...;345
14.1.2.1;12.2.1 The Alleged Adam Smith Problem;345
14.1.2.2;12.2.2 Competing Motives;346
14.1.2.3;12.2.3 Prisoners’ Dilemma Type Situations;347
14.1.2.4;12.2.4 Ability of, and Inclination to, Self-Approbation: The Impartial Spectator;348
14.1.2.5;12.2.5 Recurrent Interaction, Experience, Social Learning, and the Development of an Institution;349
14.1.2.6;12.2.6 A General Rule as a Positive Institution;351
14.1.2.7;12.2.7 Some Implications for, and Comparisons with, a Game-Theoretic View;352
14.1.2.8;12.2.8 Informal Institutions and Formal Institutional Design by the State;353
14.1.2.9;12.2.9 Socialization, Anti-Conformism, and Prudently Deviating Behavior;354
14.1.2.10;12.2.10 A Final Remark;354
14.1.3;12.3 Thomas R. Malthus: Introducing Basic Biological Principles—The “Principle of Natural Selection” and the Danger of “Bio...;355
14.1.4;12.4 Karl Marx: Principles of Historical System Evolution, and Collective Action Capacity;357
14.1.5;12.5 Carl Menger: The Early Austrian Individualistic Evolutionary Approach—An Organic Analogy of Market Evolution;358
14.1.6;12.6 Alfred Marshall: “Economic Biology” as the “Mecca” of Economics;360
14.1.7;12.7 Thorstein B. Veblen: The Founding of Evolutionary-Institutional Economics;362
14.1.8;12.8 John M. Keynes: Complex Microfoundations of Macro-Price Level, Interest Rate, and Employment Under Uncertainty–and the...;365
14.1.8.1;12.8.1 Genuine Macro, with Complex Microfoundations;365
14.1.8.2;12.8.2 Defanging Keynes’ Impact: A “Neoclassical Synthesis”;366
14.1.8.3;12.8.3 Rediscovering Keynes’ Microfoundations: Uncertainty, “Animal Spirits,” and Emerging Institutions in Post-Keynesianism …;366
14.1.8.4;12.8.4 … and the Post-Keynesian Financial Instability Hypothesis;369
14.1.8.5;12.8.5 Dealing with Keynes’ Legacy: Neo-Keynesian, New Keynesian, and Post-Keynesian;369
14.1.9;12.9 Joseph A. Schumpeter: Complex Process Through “Entrepreneurial” Innovation—Bridging Neoclassical Mainstream and Evolution;370
14.1.10;12.10 Karl Polanyi: The “Market” Economy, the Disembedding of the Market and its Downside;372
14.1.11;12.11 Gunnar Myrdal: Path-Dependent Development of Complex Systems—Circular Cumulative Causation;375
14.1.12;12.12 Herbert A. Simon: Complexity, Bounded Rationality, and “Satisficing”;376
14.1.13;12.13 Nicolas Georgescu-Roegen: The Economy as an Open System, and its Entropy;378
14.1.14;12.14 Karl W. Kapp: Open-Systems Approach, Entropy, and the “Social Costs of Private Enterprise”;380
14.1.15;12.15 Further Contributions to Complexity Microeconomics;383
14.1.15.1;12.15.1 Further Developing Classical and Marxian Modeling: Piero Sraffa;383
14.1.15.2;12.15.2 Further Developing Veblenian Evolutionary Institutionalism: John Commons and Clarence Ayres;384
14.1.15.2.1;Commons;384
14.1.15.2.2;Ayres;385
14.1.15.3;12.15.3 Further Developing Macroeconomics and Keynesianism: Michal Kalecki, Nicholas Kaldor, Luigi Pasinetti, Richard Goodw...;385
14.1.15.3.1;Kalecki;385
14.1.15.3.2;Kaldor;386
14.1.15.3.3;Pasinetti;387
14.1.15.3.4;Goodwin;387
14.1.15.3.5;Minsky;387
14.1.15.4;12.15.4 Developing Neoclassical Economics into Greater Complexity: Vilfredo Pareto;388
14.1.16;12.16 Clustering Economists in Diverse Economic Paradigms, and a Final Remark;389
14.1.17;Chapter References;390
14.1.18;Further Reading;393
14.1.19;Further Reading—Online;394
14.1.20;Exercises;394
14.1.20.1;Early Scottish Classical Economics and Adam Smith;394
14.1.20.2;Early Evolutionary Understandings in Post-Smithian and “Darwinian” Economics;394
14.1.20.3;Veblen, Keynes, Schumpeter;394
14.1.20.4;Post-Veblenian Evolutionary-Institutional and Ecological Economics;395
14.1.21;Solution Keys;395
14.2;13 Recent Core Models of Complexity Microeconomics;396
14.2.1;13.1 Introduction;398
14.2.2;13.2 A. Sen (1967) on the Isolation Paradox and Assurance Game, and the Importance of the Future;398
14.2.3;13.3 13.3 A. Achotter (1981), R. Axelrod (1984/2006), and k. Lindgren (1997) on the Emergence of Institutions;401
14.2.3.1;13.3.1 Schotter;401
14.2.3.2;13.3.2 Axelrod;404
14.2.3.3;13.3.3 Lindgren;405
14.2.4;13.4 T.C. Schelling (1978) and R. Axelrod (1984/2006) on Segregation;406
14.2.4.1;13.4.1 A Spatial Proximity Model;406
14.2.4.2;13.4.2 A Bounded-Neighborhood Model;408
14.2.4.3;13.4.3 A Territoriality Model;409
14.2.5;13.5 13.5 T.C. Schelling (1978) and W.b. Arthur (1994) on Attendance Coordination;410
14.2.5.1;13.5.1 Schelling: Simple Attendance Dynamics;410
14.2.5.1.1;Minimum Attendance;410
14.2.5.1.2;Interdependent Attendance Decisions;410
14.2.5.1.3;The Dynamics of Attendance;410
14.2.5.1.4;Alternative Expectation/Attendance Relations;411
14.2.5.2;13.5.2 Arthur: The El Farol Bar Problem;412
14.2.6;13.6 13.6 W.B. Arthur et al. (1982), W.B. Arthur (1989), and P.A. David (1985) on Increasing Returns, Positive Feedback in Technology Choice Processes, and Lock-In;414
14.2.6.1;13.6.1 Standardization and Technology Choice in Economic Systems;414
14.2.6.2;13.6.2 A Formal Model of Technology Choice and Lock-In;415
14.2.7;13.7 R.W. Cooper and A. John (1988) on Synergies and Coordination Failures;417
14.2.8;13.8 R.R. Nelson and S.G. Winter (1974, 1982) on the Evolutionary Theory of Economic Change;419
14.2.8.1;13.8.1 Evolutionary Approaches to Economics;419
14.2.8.2;13.8.2 An Evolutionary Approach to the Theory of the Firm;420
14.2.8.3;13.8.3 An Evolutionary Growth Model;421
14.2.9;13.9 S.A. Kauffman (1993) on Search on Fitness Landscapes;424
14.2.9.1;13.9.1 Illustrative Example;424
14.2.9.2;13.9.2 NK Landscapes;425
14.2.9.3;13.9.3 Fitness Levels;426
14.2.9.4;13.9.4 Search;426
14.2.10;13.10 D.J. Watts and S.H. Strogatz (1998) on Small-World Networks;427
14.2.10.1;13.10.1 The Small-World Phenomenon;428
14.2.10.2;13.10.2 Formalization of the Small-World Phenomenon;428
14.2.10.3;13.10.3 Properties of Small-World Networks;430
14.2.11;13.11 A.-L. Barabási and R. Albert (1999) on Scale-Free Networks;430
14.2.11.1;13.11.1 The Distribution of Node Degrees;430
14.2.11.2;13.11.2 A Model of Network Growth;431
14.2.11.3;13.11.3 Scale-Free Networks, Small-World Networks, and the Real World;432
14.2.12;13.12 The Veblenian Evolutionary-Institutionalist Model of Institutional Change (P.D. Bush, 1987);433
14.2.12.1;13.12.1 Veblenian Evolutionary Institutionalism Today;433
14.2.12.2;13.12.2 The Institutionalist Definition of Institutions;435
14.2.12.3;13.12.3 Values Correlating Patterns of Behavior;436
14.2.12.4;13.12.4 The Asymmetry in the Institutional Dichotomy, Ceremonial Dominance, and Ceremonial Encapsulation;436
14.2.12.5;13.12.5 A Reflection of Ceremonial Dominance and Encapsulation: The Degeneration of Instrumental Institutions into Ceremoni...;439
14.2.12.5.1;The Different Benchmarks: The Institution as Enabler Versus Ceremonial Dominance;439
14.2.12.5.2;Degeneration of an Instrumentally Warranted Institution in a Hierarchical Environment: The Career Motive and the Motive of ...;440
14.2.12.5.3;Another Ceremonial Motive, Value, and Warrant: “Institutional Economies of Scale”—from an Instrumental Institution to a Cer...;441
14.2.12.6;13.12.6 The Process and Forms of Institutional Change;443
14.2.12.7;13.12.7 The Discretionary Character of Progressive Institutional Change: A Policy Perspective;445
14.2.13;13.13 E. Ostrom (1990) and E. Ostrom et al. (1992) on the Governance of Common Pool Resources;445
14.2.13.1;13.13.1 General;445
14.2.13.2;13.13.2 The Model;446
14.2.13.3;13.13.3 The Lab Experiments;447
14.2.14;Chapter References;449
14.2.15;Further Reading—Online;451
14.3;14 The Size Dimension of Complex Economies—Towards a Meso-Economics: The Size of Interaction Arenas and the Emergence of Me...;452
14.3.1;14.1 Introduction: Why Agents Might Rationally Strive for Smaller Structures;454
14.3.2;14.2 Terms and Overview;455
14.3.2.1;14.2.1 Expectations;455
14.3.2.2;14.2.2 Agency Capabilities;455
14.3.2.3;14.2.3 Expectations in Meso-Sized Groups;455
14.3.2.4;14.2.4 Exhaustion of Cooperative Advantage;455
14.3.2.5;14.2.5 A Maximum Critical Mass;455
14.3.2.6;14.2.6 Manifold Applications;456
14.3.2.7;14.2.7 Incomplete Information, Lacking Adaptive and Learning Pressure, and Other Caveats;457
14.3.2.8;14.2.8 The Danger of Strong Ties, Lock-In, and the Potential Degeneration of Institutions;458
14.3.2.9;14.2.9 Break-Out from Lock-In: From Analysis to Application and Political Design;458
14.3.2.10;14.2.10 Micro-to-Macro Aggregation or Meso Emergence?—the Systematic Place of Meso;458
14.3.3;14.3 Size and Meso-Size of Populations and Groups in the Literature;459
14.3.3.1;14.3.1 Ontological Foundation of “Meso”;459
14.3.3.2;14.3.2 A Causal-Genetic Approach;459
14.3.3.3;14.3.3 Theoretical and Methodological Literature So Far;459
14.3.4;14.4 The Ubiquity of the Dilemma Problem and Emergent Structure Again;463
14.3.4.1;14.4.1 A Ubiquitous Everyday Problem Embedding Every Single and Simple Transaction;463
14.3.4.2;14.4.2 Dominant Incentives to Free Ride or Exploit—Technology Choice and Innovation in the Value-Added Chain;463
14.3.4.3;14.4.3 Collective-Good Character of Basic Information;463
14.3.4.4;14.4.4 Proper Institutionalized Problem Solving and Other Solutions in Reality;464
14.3.4.5;14.4.5 Degeneration of Problem-Solving Institutions and the “Social Surface”;464
14.3.4.6;14.4.6 Complexity and Market Failure;464
14.3.4.7;14.4.7 Habituation;464
14.3.4.8;14.4.8 Micro-Foundation of Macro- and Meso-Emergence;465
14.3.4.9;14.4.9 Basic Rules of the Game, Common Culture, Beliefs, and Agency Capacities…;465
14.3.4.10;14.4.10 … and the Resulting Complex Process—and Changes It Will Trigger;465
14.3.5;14.5 A Stochastic Element, the Population Perspective, and the Minimum Critical Mass Again;466
14.3.6;14.6 Adapting Group Size: Agency Mechanisms;467
14.3.6.1;14.6.1 Expectations;467
14.3.6.2;14.6.2 Memory and Monitoring;467
14.3.6.3;14.6.3 Reputation Chains;467
14.3.6.4;14.6.4 Partner Selection and a Maximum Critical Mass Smaller Than the Whole Population;468
14.3.6.4.1;Selection by Distance/Proximity/Neighborhood;468
14.3.6.4.2;Agency Capacity in Theory and Lab Experiments;468
14.3.6.4.3;Building Peer Groups;468
14.3.6.4.4;Improving Cooperators’ Outcomes;468
14.3.6.4.5;Overlapping of Individual Selected Peer Groups;469
14.3.6.4.6;More Generally: Net Externalities, Synergies, Cumulative Learning in Economics;469
14.3.6.5;14.6.5 Revisiting and Expanding the Population Perspective;470
14.3.6.5.1;Agency Mechanisms and Partner Selection;470
14.3.6.5.2;Institutions Do Carry Some Share of Defectors or Defecting Actions;471
14.3.6.5.3;A Mixed Strategy Equilibrium;471
14.3.7;14.7 An Empirical Application: High General Trust and High Macro-Performance in Meso-Structured Economies—an Explanation of...;472
14.3.7.1;14.7.1 Generalization from Expectations to Contextual and General Trust;472
14.3.7.2;14.7.2 High Levels of General Trust and Macro-Performance in Countries with Inner Meso-Structure;473
14.3.8;14.8 Conclusion: Toward Meso-Economics;475
14.3.9;Chapter References;476
14.3.10;Further Reading—Online;480
15;V: Further Applications: Information, Innovation, Policy, and Methodology;482
15.1;15 The Information Economy and the Open-Source Principle;484
15.1.1;15.1 Introduction;485
15.1.2;15.2 The Economics of Information, Knowledge, and Software;487
15.1.2.1;15.2.1 Data, Information, and Knowledge as Club Goods;487
15.1.2.2;15.2.2 Network Goods, Network Technologies, and Network Externalities;488
15.1.2.3;15.2.3 The Resulting Social Dilemma;489
15.1.2.4;15.2.4 The Strategy Space in Industries with Network Externalities;491
15.1.2.4.1;Size Effects and Price Wars;491
15.1.2.4.2;Compatibility (Interoperability) and Incompatibility;493
15.1.2.4.3;Controlling a Sector, Planned Obsolescence, and Refusal to Innovate;493
15.1.2.4.4;Tied Standards;494
15.1.2.4.5;Two-Sided Networks;494
15.1.2.4.6;Profitable Piracy;495
15.1.2.4.7;Niche Construction;496
15.1.2.4.8;Open Source as a Business Strategy;496
15.1.3;15.3 The Economics of Open Source;497
15.1.3.1;15.3.1 Open Source in Practice;497
15.1.3.2;15.3.2 Open Source in Theory;498
15.1.3.3;15.3.3 Open Source in Reality;499
15.1.3.4;15.3.4 Open Source Everywhere;500
15.1.4;15.4 Policy in the Weightless Economy: Intellectual Property Rights, Open Standards, and Other Issues;501
15.1.4.1;15.4.1 Intellectual Property Rights;501
15.1.4.1.1;Openness;501
15.1.4.1.2;Network Externalities;501
15.1.4.1.3;Size Is Power;502
15.1.4.1.4;Path Dependence;502
15.1.5;15.5 Conclusion;502
15.1.6;Chapter References;503
15.1.7;Further Reading;504
15.1.8;Further Reading—Online;504
15.1.9;Exercises;504
15.2;16 Networks and Innovation—The Networked Firm, Innovation Systems, and Varieties of Capitalism;506
15.2.1;16.1 Overview;507
15.2.2;16.2 Towards a Complexity-Based Understanding of Innovation;509
15.2.3;16.3 Firms in Clusters and Networks—An Organizational Triangle;512
15.2.3.1;16.3.1 Transaction Costs and Market Versus Hierarchy Optimization;512
15.2.3.2;16.3.2 The Networked Firm;513
15.2.3.3;16.3.3 The Organizational Triangle;514
15.2.3.4;16.3.4 The Instrumental and Ceremonial Aspects of the Institutionalized Network Dimension;516
15.2.4;16.4 National Innovation Systems;518
15.2.4.1;16.4.1 Understanding Economies and Their Potential as a Function of Their Institutional Framework;519
15.2.4.2;16.4.2 Innovation Processes in Complex Environments;519
15.2.4.3;16.4.3 Perspectives on Policy;520
15.2.5;16.5 Endogenous Development Theory;521
15.2.5.1;16.5.1 Foundations of the Concept;521
15.2.5.2;16.5.2 Four Main Focuses—Firms, Flexibility, Cities, and Institutions;521
15.2.5.3;16.5.3 Policy Focus and Implications;523
15.2.6;16.6 Varieties of Capitalism;523
15.2.6.1;16.6.1 Beyond the Predominant Understandings of Institutions at the Time;523
15.2.6.2;16.6.2 Institutional Influence and Strategic Interactions;524
15.2.6.3;16.6.3 LMEs and CMEs;525
15.2.6.4;16.6.4 Beyond the Market-Hierarchy Dichotomy;525
15.2.6.5;16.6.5 Consequences for Production Structures in Different Economies;527
15.2.6.6;16.6.6 Challenges and Focuses for Policy Makers;527
15.2.6.7;16.6.7 VoC and (the Challenges of) Globalization;528
15.2.6.8;16.6.8 Some Extensions and Basic Critique of the VoC Concept;529
15.2.7;16.7 Chapter Conclusion: Main Aspects of the Above Concepts;530
15.2.8;Chapter References;531
15.2.9;Further Reading—Online;531
15.3;17 Policy Implications: New Policy Perspectives for Private Agents, Networks, Network Consultants, and Public Policy Agencies;532
15.3.1;17.1 Policy Implications of Complexity (Micro-) Economics;534
15.3.1.1;17.1.1 The Flawed Neoclassical Mainstream Benchmark: “Second Best” or “Worst,” and a New Basic Policy Perspective;534
15.3.1.2;17.1.2 The Complexity of Economic Systems, and a Systemic Approach to Policy;534
15.3.1.2.1;A Minimum Complexity of a Controlling Policy System;535
15.3.1.2.2;Collective Rationality: Social-Choice Versus Procedural, Discourse, and Substantial Conceptions of Democracy;536
15.3.1.2.3;A Systemic, Experience- and Learning-Based, Nonmyopic Policy Approach;536
15.3.1.3;17.1.3 Further “Complexity Hints for Economic Policy”;537
15.3.2;17.2 Interactive and Institutional Economic Policy: A Lean Policy Approach for a Complex, Interactive, and Evolutionary Eco...;538
15.3.2.1;17.2.1 “Self-Organization” of Systems—And a Role for Social Evaluation, “Meritorization,” and Policy;538
15.3.2.1.1;A Solution Possible …;538
15.3.2.1.2;… But Uncertain and Fragile;539
15.3.2.1.3;A Social Evaluation, and “Meritorization” Criteria;539
15.3.2.2;17.2.2 The Typical Economic Problem, and a New Private–Public Interrelation;540
15.3.2.2.1;Typical (Macro-) Economic Problems as Individualistic Cooperation Failure (Market Failure) in Complex Economies;540
15.3.2.2.2;A New Private–Public Interrelation Defined;541
15.3.2.2.3;Making Use of the Interests of the Private Agents in the Collective Good;542
15.3.2.2.4;Starting Points of a New Policy Perspective;543
15.3.2.3;17.2.3 “Meritorics” for a Negotiated Economy and for an Instrumental Institutional Emergence;543
15.3.2.4;17.2.4 General Implications;546
15.3.2.4.1;A Paradigm Change Toward a Leaner Policy;546
15.3.2.4.2;Meso-Economics and Structural (Regional and Industrial) Policies as New Focuses;547
15.3.2.5;17.2.5 The Axelrodian Policy Model: A Basic PD-Informed Interactive/Institutional Economic Policy and a Related Instrumentation;547
15.3.2.5.1;A General View Based on the Single-Shot Inequality;547
15.3.2.5.2;Instruments I: Rewarding Cooperation;549
15.3.2.5.3;Instruments II: Enlarging the “Shadow of the Future”;549
15.3.2.5.4;A Policy Approach for Different Types of Policy Agents;549
15.3.2.6;17.2.6 Further Game-Theoretically Informed Policy Issues;550
15.3.3;17.3 Policy Implications for Information and Innovation in Firms, Networks, and Open-Source Communities;553
15.3.3.1;17.3.1 Policies to Realize the Potentials of Existing Knowledge: Moderating “Property Rights” and Developing Openness as a ...;554
15.3.3.1.1;Intellectual Property Rights and Openness;554
15.3.3.1.2;A Critical Political Time Window for Technological-Openness and Antimonopoly Strategies;555
15.3.3.2;17.3.2 Perspectives on Innovation and Development Policies;555
15.3.3.2.1;Innovation Policies;555
15.3.3.2.2;Endogenous Development Policies, Local and National;556
15.3.4;17.4 Final Conclusions;557
15.3.5;Chapter References;558
15.3.6;Further Reading—Online;560
15.4;18 How to Deal with Knowledge of Complexity Microeconomics: Theories, Empirics, Applications, and Actions;562
15.4.1;18.1 What Is Scientific Knowledge?;563
15.4.1.1;18.1.1 Scientific Systems: Models, Theories, Approaches;563
15.4.1.1.1;Mathematical Models;563
15.4.1.1.2;Theories and Approaches;564
15.4.1.2;18.1.2 Pattern Modeling and Case Studies as Method;564
15.4.1.3;18.1.3 Scientific Systems and Reality: Is Strict Testing Possible?;565
15.4.2;18.2 Positivism and Critical Rationalism;566
15.4.3;18.3 Model Platonism: The Immunizing Epistemological Practice of Mainstream Economics Under Scrutiny;566
15.4.3.1;18.3.1 The Axiomatic Method and the Original Criticism;566
15.4.3.2;18.3.2 Econometric Testing and Meta-Regressions …;567
15.4.3.3;18.3.3 … and Publication Biases;567
15.4.3.4;18.3.4 Replicability of Results and Data Transparency—Toward a New Academic Ethics;568
15.4.3.5;18.3.5 The Model Platonism Critique Then and Now;569
15.4.4;18.4 From “if” to “as if”: Milton Friedman and Methodological Instrumentalism;569
15.4.4.1;18.4.1 Friedman: Logical Positivism, Eternal Laws, and “Good Predictions”;569
15.4.4.2;18.4.2 Critiques: Assumptions, Predictions, and Strict Testing;570
15.4.5;18.5 Emulating Wrong Ideals: The McCloskey Critique of the Rhetoric of Economics;571
15.4.6;18.6 Critical Rationalism Versus Paradigms;573
15.4.6.1;18.6.1 Modern Measurement Theory and the Duhem–Quine Thesis;573
15.4.6.2;18.6.2 Scientific Systems as Paradigms, and Scientific Revolutions;574
15.4.7;18.7 Critical Realism;575
15.4.8;18.8 Reality, “Realism,” and Constructivism;577
15.4.9;18.9 Epistemological Pluralism;578
15.4.10;18.10 Further “Applying” Your Knowledge on Complex Economies: Action and Experience, Enlarging Rather Than Consuming Knowle...;580
15.4.10.1;18.10.1 Policies in a Broad Understanding;580
15.4.10.2;18.10.2 Knowledge, Expanding, and Transforming;581
15.4.11;18.11 A Final “Application”: Governance for the Res Publica, and Policy;582
15.4.12;Chapter References;582
15.4.13;Further Reading—Online;584
16;Index;586

Leseproben

Preface: A Complexity Microeconomics, “Post-Crisis”
“A surgeon, an engineer and an economist are discussing which of the three disciplines would be the oldest: The surgeon spoke first and said, ‘Remember at the beginning when God took a rib out of Adam and made Eve? Who do you think did that? Obviously, a surgeon.’ The engineer was undaunted by this and said, ‘You remember that God made the world before that. He separated the land from the sea. Who do you think did that except an engineer?’ ‘Just a moment,’ protested the economist, ‘before God made the world, what was there? Chaos. Who do you think was responsible for that?’” Told by Franco Modigliani1 “[…] the paradigm shift from a geocentric to a heliocentric worldview facilitated modern physics, including the ability to launch satellites. In the same way should a paradigm shift from a component-oriented to an interaction-oriented, systemic perspective (as promoted by complexity science) enable us to find new solutions to urgent societal problems.” Dirk Helbing and Alan Kirman2 Economics after 2008
Lingering Crises, Increased Socioeconomic Volatility, and the Struggle for Answers
Economists being responsible for “chaos,” as mentioned in the little metaphor above. Admittedly, economics has not been really successful so far in contributing to the solution of the most basic problems of mankind. Contributing to the solution of the problems of the world nowadays would mean to give useful advice for a more sustainable, and socially and regionally inclusive, more stable, and reliable economic development, where all agents may become capable of learning, investing in their human and social capital, and innovating in a broad sense. And many professional practitioners, entrepreneurs, and politicians, supported by an increasing number of critics from the ranks of academic economics itself, nowadays think that economists have increasingly failed to inform such actions. Among these problems figure those of a sustainable use of resources, climate protection, of food safety, health, and education provision for all, an income distribution considered fair, efficient, and just by most, social inclusion, power control, or more participation. The neoliberal recipes, however, have largely been “De-regularisez! Privatisez! Le marché va de lui-même.” And their singular trust in market forces for achieving social and economic improvements does no longer appear sufficient to an increasing number of discontents from both outside and within economics. Rather, we have experienced the most severe financial meltdown and economic crisis since 80 years, if not in history, aggravated by food and resource, climate, health, social, political, and even moral crises. Markets and industrial and financial corporations often appeared helpless, and the latter at times desperately called in the most massive support of the state (budget and central banks) and, thus, taxpayers. This crisis, still lingering, appears to be a case, a prominent one indeed, of a most basic complexity-economics issue, a case of collective negative unintended consequences of what appeared rational individualism. This outcome of a fallacy of aggregation reflects increased, but insufficiently recognized systemic complexity, including ubiquitous social dilemmas, reinforced by an overly individualistic cultural framework. Since the beginning of the financial crisis 2007–2008, the big established printed media have become particularly critical against economics and its “mainstream”. In the New York Times, for instance, famous physicist and economist Mark Buchanan argued in 2008 that economics were the only nonmodern discipline left, as its mainstream had no developed complexity approach, also arguing that “this economy does not compute” the way the economics mainstream’s pure market model and its “rational” individuals allegedly do (Buchanan, 2008). In the Times, economists were declared “the guilty men” of the financial crisis (Kaletsky, 2009a). And the same newspaper called for a “revolution” in economic thought (Kaletsky, 2009b). And while the Financial Times diagnosed the “unfortunate uselessness of most state-of the-art economics” in the monetary field (Buiter, 2009), the New York Times again, right at the beginning of the crisis in 2007, had hope that “in economics departments, a growing will to debate fundamental assumptions” would emerge (Cohen, 2007), just in order to express its disappointment on that 2 years later: “ivory tower unswayed by crashing economy” (Cohen, 2009). The Scientific American just stated: “The economist has no clothes” (Nadeau, 2008). Against that background, many of these and other established newspapers and journals, printed or “blogosphere,” non- or semi-academic, discovered existing paradigmatic alternatives as “hip heterodoxy” (Hayes, 2007) or “a brave army of heretics” (Warsh, 2009 on economicprincipals.com). Noncomplex Advice for Complex Problems?
Answers of the “mainstream” of economics to complex structures and processes, to increasing power differences and conflict, uneven development, ecological deterioration, food and energy crises, etc. have indeed remained insufficient. They have been derived from a less complex core model, a model of a market economy, partial-market equilibrium, or general equilibrium across partial markets, with presupposed perfect information, rationality of agents, selfish individual behaviors that yield a beneficial collective result, i.e., the invisible hand metaphor and paradigm, with the behavior of all agents corresponding to an average or representative agent, efficient prices that reflect all relevant information, and an inherent tendency toward the (ideally unique and stable) general equilibrium. Consequently, the advice of the “mainstream” of economics has increasingly been criticized as being simplistic, and thus often inappropriate. The approach appears designed to apply a certain mathematical approach in order to yield a predetermined equilibrium for an economic system, at the cost of assuming identical agents and no direct interaction among them, in a pure prices–quantities world (see, e.g., Foster, 2005, 2006, pp. 1072–1075). A number of well-known complexity economists, such as A. Kirman, H. Föllmer, or D. Colander, in their famous “Dahlem Report” (2009b), straightforwardly stated that “mainstream” economics were predominantly responsible for the financial crisis. Others have argued that the economics “mainstream” were less about providing instrumental knowledge but rather just an easy unifying value-base for society (see, e.g., Nelson, 2001). This reminds of an older critique, according to which the “hidden methodology” of the “mainstream” would consist of a particular rhetoric (see, e.g., McCloskey, 1983). It also seems that the policy advice of shaping the world according to such an ideal “market” model has made the world even more complex and overly turbulent by removing stabilizing institutional coordination forms and thus disembedding markets from social institutions. Markets then often tend to increasingly fail. It has been argued that the crises of the market economy then are unintended “collapses of complexity” (see, e.g., Mirowski, 2010). At any rate, appropriate complexity reduction will be as necessary for problem solving in the real world as a proper acknowledgment and treatment of its complexity. While the neoclassical “mainstream” assigned the properties of perfect information and rationality to the individual, with resulting systemic optimality, equilibration, and alleged stability and “proper” complexity, others who have contributed to the neoliberal revolution, such as Hayek and the Hayekians, have adopted the other extreme, i.e., while they acknowledge that the individual may not be perfectly informed, they allot perfect knowledge to the market system as a whole, yielding the same systemic results of market optimality. However, appropriately complex answers to the real-world complexity, with its many, and heterogeneous, agents directly involved and interacting, and even more potential relations of different kinds among them, may indeed imply a mix of different and diverse “allocation mechanisms” and coordination forms—including institutional forms, hierarchies, private and public, and networks—rather than a monism derived from an ideal, “pure” model of a “market”. In a real-world economics, we will have to drop the idea of a simplistic, noncomplex structure or process, and a predetermined, optimal, and stable equilibrium. A whole and rich world of rigid economic analysis has been opened up through this. What Is Neoclassical “Mainstream” Economics—And Does It Still Exist?
Many economists, therefore, have tried again, in recent years and in particular in the post-2008 or post-crisis years, to scrutinize, reconsider, and (re-)define the “hard core” of such an economics “mainstream,” or neoclassical paradigm, such as methodological individualism, instrumentalism, or equilibration, and to find out, whether it really still exists, as a...