Competition, Fisher's Principle and increasing returns in the selection process

Metcalfe, J. Stanley

doi:10.1007/bf01236409

Cited by 141 publications

(76 citation statements)

References 26 publications

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“…growth of size, occurs in favour of the more efficient and more profitable (incumbent or entrant) firms, has become the standard interpretative framework in models of firm-industry evolution (among the many, see Jovanovic, 1982;Ericson and Pakes, 1995;Melitz, 2003;Asplund and Nocke, 2006). Similarly, other influential theorists (such as Nelson and Winter, 1982;Metcalfe, 1994;Dosi, 2000), posit a positive association between productivity or profits growth and subsequent growth in the market, according to the evolutionary principle of 'growth of the fitter'.…”

Section: Theoretical Backgroundmentioning

confidence: 99%

Growth processes of Italian manufacturing firms

Coad¹,

Rao

Tamagni

2011

Structural Change and Economic Dynamics

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This paper presents a multidimensional empirical analysis of firm growth. Exploiting census data on Italian manufacturing firms, 1989-1997, we estimate a reduced-form VAR to analyze the co-evolution of employment growth, sales growth, growth of profits and labour productivity growth. Our main findings suggest that (i) employment growth precedes sales growth; (ii) productivity growth lacks any strong association with subsequent growth of the other indicators; (iii) profits growth represents the 'absorbing dimension' of the growth processes. This picture contrasts with 'accelerator models', predicting sales are the driver of the growth process, and is also at odds with theories of firm-industry evolution assuming productivity or profits advantages to be the driver of strong market selection/reallocation mechanisms. Instead, the findings reveal the existence of (weak) Penrose and (strong) Kaldor-Verdoorn effects, and more generally convey the view that employment growth is the key driver of firm expansion, while profits, once made, are not reinvested.JEL codes: C30, D20, L20, L25

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Section: Theoretical Backgroundmentioning

confidence: 99%

Growth processes of Italian manufacturing firms

Coad¹,

Rao

Tamagni

2011

Structural Change and Economic Dynamics

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“…This is reflected in the famous theorem by Fisher (1930) which says that the greater the genetic variability upon which selection for fitness acts, the greater the expected improvement in fitness is. Indeed, selection (survival and reproduction) that builds upon a broader basis (greater diversity) can realize a higher performance and thus a higher average fitness of survivors (selected units) (e.g., Metcalfe 1994 and. In addition, greater diversity means a greater potential for creative combinations.…”

Section: Diversitymentioning

confidence: 99%

Optimal diversity: Increasing returns versus recombinant innovation

Bergh

2008

Journal of Economic Behavior & Organization

133

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Choices regarding diversity play an important role in economics and innovation management, but often remain implicit. Once made explicit, the objectives of efficiency and diversity are usually posed as in conflict, as efficiency relates positively and diversity negatively to various increasing returns to scale in markets. Such a perspective, however, neglects the benefits of diversity in terms of realizing system improvements through recombinant innovation or spillovers. The latter implies a contribution of diversity to long-term efficiency. Dominant economic approaches that address diversity, such as option value and real options theories, regard benefits of diversity as exogenous. This paper proposes a simple model of variable, endogenous diversity to analyze the optimal balance between increasing returns to scale and recombinant innovation. It is discussed under which conditions one of four solutions is optimal: complete specialization regardless of which option, complete specialization in one specific option, symmetric diversity (perfect balance), and asymmetric diversity. The results give rise to a number of policy insights.

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“…This means theorizing, e.g., about some underlying mechanisms of change or some typical transition patterns (assumed to be involved in generating historically unique outcomes without themselves being equally historically unique). A wide variety of modeling approaches is based on this methodology: diffusion models describing technological change as a result of innovativeness (Metcalfe 1988), selection models emulating competitive industrial change (Metcalfe 1994), models of path-dependence, lock-in, and critical masses in technological or institutional change (Arthur 1994;David 1993;Witt 1989). Last but not least, there is, of course, the option to develop explanatory hypotheses on the historical process of evolution itself, like, e.g., Hayek's (1988) theory of societal evolution.…”

Section: Why Ontology and Heuristics Matter And Methodology Matters Lmentioning

confidence: 99%

“…As an analytically solvable alternative an approach based on the replicator dynamics has been suggested by Metcalfe (1994). It raises the heuristic of the selection metaphor to the level of a more stringent analogy construction.…”

Section: A Guide To Evolutionary Economicsmentioning

confidence: 99%

What is specific about evolutionary economics?

Witt¹

2008

J Evol Econ

185

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Ever since an "evolutionary" perspective on the economy has been suggested, there have been differing, and partly incommensurable, views on what specifically this means. By working out where the differences lie and what motivates them, this paper identifies four major approaches to evolutionary economics. The differences between them can be traced back to opposite positions regarding the basic assumptions about reality and the proper conceptualization of evolution. The same differences can also be found in evolutionary game theory. Achievements of the major approaches to evolutionary economics and their prospects for future research are assessed by means of a peer survey.

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Competition, Fisher's Principle and increasing returns in the selection process

Cited by 141 publications

References 26 publications

Growth processes of Italian manufacturing firms

Growth processes of Italian manufacturing firms

Optimal diversity: Increasing returns versus recombinant innovation

What is specific about evolutionary economics?

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