The project on Systems Analysis of Technological and Economic Dynamics is concerned with modeling technological change, and the broader economic developments that are associated with technological change, both as cause and effect. The central purpose is to develop stronger theory and better modeling techniques. The basic philosophy is that such theoretical and modeling work is most fruitful when attention is paid to the known empirical details of the phenomena the work aims to address. In collaboration with various IIASA projects and an international, inter-disciplinary network of researchers, it is expected that the project will contribute major advancements to the evolutionary theory of economic change.
Over the last decade considerable progress has been made on various techniques of dynamic economic modeling. Some of this work has employed ordinary differential and difference equations, and some of it stochastic equations. Several models have been developed in which an economic analogue of "natural selection" winnows out a population whose members have different attributes and different degrees of fitness. A number of efforts have taken advantage of the growing power of simulation techniques. Others have employed more traditional mathematics. As a result of this theoretical work, the tool kit for modeling technological and economic dynamics is significantly richer than it was a decade ago.
During the same period, there have been major advances in the empirical understanding. There are now many more detailed technological histories available. Much more is known about the similarities and differences of technical advance in different fields and industries and there is some understanding of the key variables that lie behind those differences. A number of studies have provided rich information about how industry structure coevolves with technology. In addition to empirical work at the technology or sector level, the last decade has also seen a great deal of empirical research on productivity growth and measured technical advance at the level of whole economies. A considerable body of empirical research now exists on the facts that seem associated with different rates of productivity growth across the range of nations.
As a result of this recent empirical work, the questions that successful theory and useful modeling techniques ought to address now are much more clearly defined. The theoretical work described above often has been undertaken in appreciation of certain stylized facts that needed to be explained, like the apparent phenomenon of dynamic increasing returns, or in other cases, understanding that in many industries the distribution of firm sizes is approximately log normal. However, the connection between the theoretical work and the empirical phenomena has so far not been very close. The philosophy of this project is that the chances of developing powerful new theory and useful new analytical techniques can be greatly enhanced by performing the work in an environment where scholars who understand the empirical phenomena provide questions and challenges for the theorists and their work.
At the present time, there are several places where theoretical work on technological and economic dynamics is going on. This project, however, would be unique in its philosophy and organization. It will have strong links with theoretical scholars, with scholars such as those involved in the various Sloan Foundation Projects centered in the USA studying the comparative evolution of different industries, with scholars working with the newly available datasets that enable to follow over time the collection of establishments within a given industry, such as researchers at Statistics Canada, and with scholars concerned with broader macroeconomic questions such as convergence.
A major ambition of the project is to mobilize and coordinate multiple research efforts from `core members' of the project, who also participate in other networks, well beyond the resources available at IIASA by bringing in contributions generated elsewhere relevant to the project itself. Complementarily, it is planned to strengthen the group of researchers staying permanently or for relatively long periods at IIASA, who are working, in particular, in the areas of evolutionary modeling and computer simulation.
A major distinguishing feature of this project is the attempt to advance the theoretical understanding of technological and economic evolution by modeling efforts through a detailed reconstruction of the empirical phenomena that are to be explained. At the same time, empirically-minded researchers are confronted with the conjectures and results stemming from theory. Hence, it is part of the basic spirit of the project to bring formal modelers and people who know the empirical details of the subject matter in close and continuing contact. This has occurred already in the first two workshops on "Organizational Capabilities" and "Industrial Evolution," held in June and July 1994. This highly successful experience will be continued. Two intertwined methodological perspectives will be addressed. The first concerns a deeper understanding of the "stylized facts" (i.e., robust empirical regularities) concerning industrial evolution, corporate learning and economic growth. These "facts" will also be the object of theoretical interpretation and modeling. In particular: (1) the identification of a coherent picture of the regularities in industrial demography (entry, exit, etc.); the distributions of industrial performances; the dynamics of industrial structures; `life-cycle' phenomena in industrial change; and intersectoral differences and differences in evolutionary patterns conditional to particular `technological regimes'; (2) the investigation of possible regularities in the processes of corporate learning and knowledge replication, and the links between learning processes, governance structures and particular sets of corporate routines; and (3) a better understanding of the `stylized facts' on trade and growth and their relationships to technological and organizational change.
The second theoretical analysis builds upon the above `stylized facts' through what Richard Nelson and Sidney Winter have called `appreciating theorizing', that is, historically-based interpretations of patterns of industrial change, corporate evolution, etc., attempting to identify the fundamental factors underlying particular observed evolutionary patterns. These research activities will be undertaken in close collaboration with other related projects, including: Richard Nelson and his Sloan Foundation sponsored project, Columbia University, USA; F. Malerba and L. Orsenigo at Bocconi University, Milan, Italy; B. Coriat at the University of Paris XIII; Serguei Glaziev and his team from the International Centre for Research into Economic Transformation, Moscow, Russia; and Valery L. Makarov and his group at CEMI, Moscow, Russia. Second, "stylized facts" and "appreciative theories" will also serve the purpose of inspiring and guiding formal modeling endeavors which will be undertaken, in particular, with respect to industrial dynamics and organizational learning. Both highly simplified evolutionary models suitable for analytical treatment and behaviorally richer models are to be explored via simulation exercises. For the former, various stochastic modeling techniques, including generalized Polya urns, will be further developed and applied. Promising areas of research include stochastic growth in interdependent economies with endogenous (and diverse) rates of technical change; evolutionary macrodynamics driven by a firm's entry, differential growth and exit, strategic interactions with endogenous payoffs.
With regard to simulation exercises, different variants of an evolutionary model of industrial dynamics will be developed , systematically studying the ability to generate (i.e., in some sense "explain") the stylized facts noted earlier. Moreover, the research team is beginning to set up a model of corporate learning. The identification of `stylized facts' and `stylized processes', and model-based theoretical developments include all three current areas of analysis, namely: (1) the nature and dynamics of organizational capabilities; (2) technological regimes, industrial demography and the evolution of industrial structures; and (3) evolutionary processes of growth and development.
In terms of the planned schedule, the 1994 seminars on The Nature and Dynamics of Organizational Capability, and on The Technological Regimes, Industrial Demography and the Evolution of Industrial Structures, were intended to yield a thorough recognition in these two areas of the state-of-the-art of our empirical knowledge, of the major puzzles that the available evidence poses for the theory, and the identification of the most promising modeling directions. Most likely, a significant number of participants, in addition to the project's researchers, will eventually pursue relatively complementary research efforts, and the results will then be discussed in the second and third years of the project.
In a similar style a workshop on "Models of Evolutionary Change" is planned for 20-22 January, 1995. Each introductory workshop will be followed by smaller meetings, to guide the elaboration of the work-in-progress contributions. Hence, two work-in-progress meetings on learning, routines and corporate learning and one on evolutionary models of growth in the second half of 1995 are planned to discuss preliminary plans on the subjects. Moreover, project researchers will participate in a joint symposium on Economic Growth sponsored by the Canadian Institute of Advanced Research (CIAR), planned for 25-27 March, 1995.
At least two other areas appear to be important components for the research project, however, the study of these two additional areas depends on the amount of resources devoted to the project. The two areas are: (1) General features of learning processes in evolutionary environments; and (2) How do markets work and how do they emerge? A puzzling and still underinvestigated question regards the nature of learning - by individuals and even more so by organizations in environments that undergo continuous changes, and that are complex enough to allow agents to develop only imprecise representations, and, most likely, highly suboptimal behavioral patterns. But, in turn, how do representations and an interpretative frame emerge? Under what circumstances do routinized behaviors turn out to be robust forms of evolutionary adaptation? How are routines discovered? The project intends to begin an exploration of these issues in close collaboration with economic psychologists, organizational theorists and international research groups working on similar themes (among others, at the Universities of Michigan, Trento and Venice).
As surprising as it might sound, the understanding that economists have of the detailed functioning of market interactions is still highly rudimentary, as is knowledge of the forces that shape their emergence - notwithstanding the importance of the topics, especially from a normative point of view for the transition of ex-centrally planned economics. Moreover, a deeper appreciation of market processes - and their variety - is a necessary condition for empirically sound theoretical representations of the selective pressures, incentives and constraints that agents face, and ultimately of the ways markets aggregate individual behaviors. A fruitful perspective might be to undertake some detailed studies of particular markets, both in the Western and Eastern economies, linking up with the very few research projects already in progress (e.g., at the European University Institute in Florence).
At the end of the planned three years, it is expected that the project will have contributed major advancements in the evolutionary theory of economic change. Needless to say, the results of each area of research will yield at least a volume, presenting together the novel contributions generated within or in association to the Project. However, and much more important, the Project is expected to become one of the most visible and productive `seeding mechanisms' for evolutionary analyses, attracting a wide invisible college of scholars around the world.
The leader of the project is Giovanni Dosi from the Department of Economics at the University of "La Sapienza", Italy. In addition to a research team at IIASA, presently including Iouri Kaniovski, members of the research network spend varying amounts of time at IIASA ranging from a few weeks to a few months per year. The following researchers are expected to play important roles in directing the project: Serguei Glaziev and Valery L. Makarov, CEMI, Moscow, Russia; Richard Nelson, Columbia University, USA; Luc Soete and Gerald Silverberg, MERIT, University of Limburg, Netherlands; and Sidney G. Winter, the University of Pennsylvania.
There are several ongoing IIASA projects with which this one will have close interactions: the Environmentally Compatible Energy Strategies Project, especially with respect to the study on technology and the environment, which looks at the emerging environmental criteria shaping technological trajectories, the Optimization Under Uncertainty, and Dynamic Systems Projects, and the Economic Transitions and Integration Project, particularly the study on research and development management in the transition to a market economy.
The project involves a wide network of international collaborators, including scholars from: Stanford University, University of California-Berkeley, Columbia University, University of Manchester, University of Minnesota, University of Maryland, University of Rome, University Luigi Bocconi in Milan, University of Trento, the Wharton School at the University of Pennsylvania, Statistics Canada, the V.M. Glushkov Institute of Cybernetics in Kiev, MERIT at the University of Limburg, the Netherlands, CEMI in Moscow, the Solvay Institute in Brussels, the Santa Fe Institute, USA, the Technical Research Center of Finland, Espoo, CEPREMAP, Paris, and the University of Paris XIII.