Ulrich Witt

Learning to Consume - A Theory of Wants and the Growth of Demand

Abstract. The theory of economic growth takes little notice of what is happening on the demand side of the markets so that ever more goods and services can be sold. In order to make progress, this paper revives a classical notion in economics, the concept of wants, and re-casts it in terms of a behavioral theory. Hypotheses are discussed concerning the wants people pursue, the changes in these wants, and the corresponding consumption knowledge. The implications derived focus on why, in spite of the historically unique growth of per capita income in the modern economies, consumption has not been altogether satiated. In the suggested explanation, increasing variety of consumption items offered in the markets and increasing specialization of the consumers in their demand activities play a key role.

Lock-in vs. "critical masses" - industrial change under network externalities

Abstract Where increasing returns to adoption play a role in the diffusion of a new technology, technological “lock-in” is now often claimed to occur. However, this result, and the modeling approach that produces it, are problematic. Further innovations could never have a chance of disseminating, if “lock-in” had occurred in the diffusion process of earlier innovations. Yet, in reality, industrial change does not come to a halt. The paper offers a discussion of the apparent paradox. From an alternative modeling approach conditions are derived under which a newly introduced technology can successfully disseminate in the market despite existing network externalities.

On the proper interpretation of 'evolution' in economics and its implications for production theory

How relevant is the notion of evolution for economics? In view of the paradigmatic influence of Darwinian thought, several recently advocated interpretations are discussed first which rely on Darwinian concepts. As an alternative, a notion of evolution is suggested that is based on a few, abstract, common principles which all domain‐specific evolutionary processes share, including those in the economy. A different, ontological question is whether and, if so, how the various domain‐specific evolutionary processes are connected. As an answer, an evolutionary continuity hypothesis is postulated and its concrete economic implications are discussed exemplarily for the theory of production.

Self-organization and economics—what is new?

Abstract The theory of self-organization, discussed recently in the sciences, provides an abstract, general description of evolutionary processes. This paper argues that it is also of some relevance to economics. Insights into the functioning of dissipative systems—the basic unit of self-organization—can shed new light on the economic theory of the means of production and long-term growth. Moreover, as the economic counterpart to self-organization, the classical ‘invisible hand’ conjecture concerning the self-regulation capacity of markets is incomplete. Self-organization theory suggests to extend it to account for the self-amplifying features of innovative change in the markets.

The evolution of economic institutions as a propagation process

Based on some notions from recent game theoretic approaches to explain the emergence of institutions, a model is put forward which implies some generalizations and extensions. First, the evolution of institutions is interpreted as a diffusion process. This interpretation provides a general formal framework to cover both, the case of strategic and that of non-strategic interaction. Second, different forms of interdependency effects between the individuals involved are identified as making the crucial difference between the case where institutions emerge spontaneously in an unorganized form and the case where they do not.

Innovations, Externalities and the Problem of Economic Progress

In modern industrial societies innovativeness is seen as a source of economic growth and welfare increases. Following this assessment economic research presently focusses almost exclusively on the question of how to elicit innovations. Yet innovative economic activities have always also meant losses, sometimes even hardship, to some members of society, and incalculable risks. The present paper tries to develop a more balanced picture by acknowledging these less pleasant implications. Whether, and under what conditions, the permissive regime which modern societies have adopted towards innovations can be justified is discussed within the framework of a contractarian approach.

The Endogenous Public Choice Theorist

Public choice theory has effectively explored defects in collective action and political processes. However, little attention has been given to the fact that any recommendations as to how to improve the situation can only be realized on the basis of precisely those defective institutions. What turns up here can be identified as a problem of self-reference. Normative contributions by Buchanan and Hayek may serve as an example. In order to clear up the seemingly paradoxical situation, “endogenization” of the public choice theorist within an extended theory is suggested. A straight-forward extension is briefly outlined.

Economics, sociobiology and behavioral psychology on preferences

Abstract Economists have become increasingly interested in hypotheses from sociobiology as a source of inspiration for filling gaps in the economic model of behavior. To avoid borrowing eclectically and arbitrarily from neighboring disciplines, this paper attempts to outline in a systematic way the similarities and differences between the approaches taken in economics and sociobiology. In doing so, special attention is given to an empirical theory of preferences that is lacking in economics. Here, inspiration from sociobiology would seem to be particularly useful. The considerations in the paper suggest that sociobiological arguments may indeed be helpful, albeit at a very elementary level only. A more comprehensive theory cannot ignore the influences of innate learning mechanisms in higher living beings. An elaborated theory of preferences in economics will have to acknowledge and incorporate insights from behavioral psychology.

The Hayekian Puzzle: Spontaneous Order and the Business Cycle

A distinction is often made in F. A. Hayeks oeuvre between his earlier inquiries into the theory of capital and the business cycle and his later work on social philosophy and spontaneous economic order. This paper argues that these phases are based on two different, and basically incompatible, research paradigms--general equilibrium versus the dynamics of learning and expectation formation. Apparently running into troubles with his general equilibrium approach, Hayek abandoned business cycle research and never attempted to integrate it with his later thought. The paper therefore reconsiders the role of cyclical economic fluctuations within a theory of spontaneous economic order. Copyright 1997 by Scottish Economic Society.

Turning Austrian Economics into an Evolutionary Theory

Although two of the original protagonist of evolutionary thinking in economics — Schumpeter and Hayek — were born in Austria and educated in Vienna, Austrian economics and the evolutionary approach are usually considered to be two distinct and independent developments. This distinction has something to it and the present chapter will give some hints as to why. However, the two schools also have much in common. It seems worthwhile, therefore, to examine whether matching the two lines of thought could yield a promising research strategy. An exploration of this question is complicated, unfortunately, by the fact that within the Austrian school there is considerable disagreement about various issues (see, Shand, 1981). The same is true with respect to the evolutionary approach that still suffers from a significant lack of coherence (see Witt, 1992a). Before the possible gains from matching ideas from the two camps can be assessed, a thorough review of similarities and differences between, and shortcoming and strenghts of, several positions in both schools seems necessary.