Francisco Fatas-Villafranca

UNDERSTANDING THE DEMAND-SIDE OF ECONOMIC CHANGE: A CONTRIBUTION TO FORMAL EVOLUTIONARY THEORIZING

An outstanding fact of capitalist change in the last few centuries is the ongoing emergence of new consumption alternatives which accompany income and productivity growth in expanding economies. Far from satiating consumers, exponential economic growth seems to stimulate human desires by providing novelty and variety embodied in a persuasive flow of unsettling goods. Although this is a well-known fact characteristic of capitalist change, little attention has been paid by modern growth theorists to the understanding of demand-side phenomena related to the increasing significance of consumption activities in our societies. Against this background, in this article, we show that as soon as we start drawing the demand-side contour of economic change, new phenomena appear which enrich our understanding of economic growth and structural change. By using ‘replicator dynamics’ systems, consumption dynamics are formally linked to the ongoing generation of innovations in capitalist economies. Certain emergent properties concerning economic growth and structural change and several policy implications follow.

Emulation, Prevention and Social Interaction in Consumption Dynamics

In this paper we show that the role of diversity, local interactions and global endogenous change at the level of social standards might be crucial in understanding the evolution of consumption patterns in modern economies. We propose an evolutionary model from which consumption dynamics can be analyzed as global properties emerging from the endogenous transformation of a society inhabited by boundedly rational interactive consumers. This work aspires to take a modest step forward in the direction of an evolutionary theory of demand change.

ENDOGENOUS CYCLICAL GROWTH WITH A SIGMOIDAL DIFFUSION OF INNOVATIONS

The model we propose in this paper is an extension of the one described in Freeman et al. [Freeman, S., Hong, D. and Peled, D. (1999) Endogenous Cycles and Growth with Indivisible Technological Developments. Review of Economics Dynamics, 2, 403–432]. In our model, we incorporate the process of diffusion of major innovations and analyze macroeconomic effects on consumption, capital and aggregate output. Following Bresnahan and Trajtenberg [Bresnahan, T. and Trajtenberg, M. (1995) General Purpose Technologies: Engines of Growth?. Journal of Econometrics, 65, 83–108.], Helpman [Helpman, E. (ed.) (1998) General Purpose Technologies and Economic Growth. MIT Press] and Lipsey et al. [Lipsey, R.G., Carlaw, K. and Bekar, C. (2005) Economic Transformations: General Purpose Technologies and Long Term Economic Growth. Oxford University Press.] we assimilate major innovations with the emergence of certain GPTs, and we suggest that the diffusion process for these technologies, at a large scale, might follow an S-shaped pattern. The proposed model presents optimum stationary solutions which are cyclical and have a wave dynamic within each cycle. The cycles are characterized by certain co-movements in consumption, R&D investment, capital accumulation and output. Consideration of the innovation diffusion process highlights new aspects of endogenous cycles and long-run growth.

A Formal Discussion of the Sarewitz-Nelson Rules

ABSTRACT In this paper, we formally discuss the Sarewitz-Nelson rules for technological fixes (SN-rules). In their original form, the SN-rules were formulated from an implicit theoretical framework such that they define a broad technology assessment heuristic. This formulation has advantages and disadvantages. In this work, we propose that it is possible to make advances in the interpretation and use of the SN-rules, if we formally consider them as a procedure for technology screening, integrated within a wider process of technology choice and policy-making. This conception helps us to assess the nature and applicability of the SN-rules in different contexts, and allows us to position them as a contribution to the economic theory of technology policy.

The Economics of Utopia: A Co-Evolutionary Model of Ideas, Citizens and Civilization

We propose a new history-friendly approach to evolutionary socio-economic dynamics based around competition between five ‘utopias’, as central ideas about which to order society: capitalism, socialism, democracy, nature, and nationalism (Montgomery and Chirot 2015). In our model, citizens contribute economic resources to their preferred utopia, and societal dynamics are explained as a co-evolutionary process between these competing utopias. Civilization emerges with competitive balance between these ideas, maximized when no one utopia dominates. We calibrate the model on a study of socio-economic and political change in the US from the 1960s-present. We cover such episodes as the outbreak of civil rights/pro-democracy movements in the 1970s, the rise of neo-liberalism in the 1980s, and the channels through which America engendered an ‘age of fracture’. Further applications for empirical and theoretical research are suggested.

A computational consumer-driven market model: statistical properties and the underlying industry dynamics

We present an agent-based market model in which social emulation by consumers and the adaptation of producers to demand play a significant role. Our theoretical approach considers boundedly-rational agents, heterogeneity of agents and product characteristics, and the co-evolution of consumers’ desires and firms’ adaptation efforts. The model reproduces, and allows us to interpret, statistical regularities which have been observed in the evolution of industrial sectors, and that seem to be also significant in the case of discretionary consumption activities. Thus, we suggest new determinants and explanations (from the consumer-side) for these stylized facts, and we obtain new theoretical patterns which may be of help to better understand the dynamics of discretionary goods markets. This model and results may contribute to guide future research on the field of consumer market.

Absorptive capacity of demand in sports innovation

ABSTRACT We propose a stylized and tractable neo-Schumpeterian model of sectorial transformations in which demand-side knowledge constraints inhibit innovation diffusion and industrial change, causing structural instability. Evolutionary competition in the model implies that innovation can overshoot the absorptive capacity of demand, leading to a slowdown in sectorial dynamism and even to structural collapse. Closed-form analytical results prove the existence of a unique stationary state in the dynamic model that is (globally) asymptotically stable. We show how the dynamic paths and the stationary rest-point depend on the trade-off between innovation and demand absorptive capacity parameters. To illustrate the plausibility and relevance of our results, we examine the Australian windsurfing industry in which diminished demand absorptive capacity (in the terms of the model) was a factor underlying sectoral collapse. We discuss how development of absorptive capacity of demand presents a collective action problem for an industry sector, and the role of demand-side factors as constraints in industry and innovation policy.

Consumer social learning and industrial dynamics

ABSTRACT In this paper, we propose an agent-based model in which industrial dynamics depend on consumer social learning and firm innovation efforts. We draw on behavioral economics and consumer psychology to model consumer learning as a process of social adaptation-cum-individual novelties which operates within a stochastic dynamic network. In our model, consumers create original patterns of behavior, but they also imitate similar others through a (degree-dependent) influence-biased process of change. Likewise, consumer behavior is shaped by firms which attempt to capture larger market shares. Thus, we propose a model in which consumers update their position (tastes) in a product characteristics space through innovation and adaptation, and co-evolve with profit-seeking firms which observe and shape evolving consumer behavior. We simulate the resulting market process obtaining trajectories and stationary states for the degree of industrial concentration, the number of producers, and certain features of the industry lifecycle. The analysis of the model reveals how three demand parameters – consumer ‘insistence’ (capturing inertia in decision-making), the ‘locality’ of consumer learning, and consumer ‘loyalty’ to firms – affect industry evolution. Likewise, the model generates a continuum of limit industrial structures – from perfect competition, to oligopolies or monopolies – with said demand parameters influencing the stationary states.

An Evolutionary Growth Model with Banking Activity

In this paper, we propose an evolutionary growth model in which an innovative production sector interacts with a simplified banking sector. We explore the relationships between long-term sources of growth (technological change), and short-term/mid-term factors (such as price dynamics and interest rates). The model suggests new explanations for the endogenous emergence of sharp crises with profound effects in the long run. An interesting aspect of the model is that these crises appear in a strictly private economy, in which everything produced is sold, there are no government distortions, and there are no exogenous shocks. The crises emerge from the interactions between uneven innovation rates and market reactivity. In fact, high reactivity in financial markets can amplify the (initially small) effects of innovative competition, leading to a destabilization of economic growth. Drawing on the model results we suggest some policy implications.

Rethinking Macroeconomic Policy within a Simple Dynamic Model: Simple Dynamic Model to Rethink Standard Policy

We propose a simple macro‐dynamic model to rethink standard policy prescriptions. Our model includes exogenous growth, endogenous capital accumulation and debt, demand‐driven production with a non‐linear IS curve, a dynamic Phillips curve, and fiscal and monetary policy instruments. It has multiple steady states with different stability properties, and it is analytically tractable to a significant extent. We complete the analytical results with simulations. We find alternative growth patterns, endogenous fluctuations, and demand‐driven level effects even in the long‐run. For certain steady states the model shows saddle‐path type instabilities, which lead us to reflect on fiscal and monetary policy standards.