Transcript Science and Technology Dynamics Evolutionary perspectives on the role of technology in economic

Science and Technology
Dynamics
Evolutionary perspectives on the
role of technology in economic
development
Introduced by Andreas Reinstaller
Aim of the course
Give an overview on the evolutionary
perspective on the economics of innovation;
Introduce some of its fields of application.
Beware: The economics of innovation is not
SCOT or ANT applied to economic issues.
There are overlaps, but differences are
considerable in terms of methodology and
subject matter.
Structure of the course
 Four units introducing the most important concepts of
the evolutionary approach to innovation and growth
 Four units on specific topics of interest: knowledge
economy (IPRs), development, sustainability,
measurement of innovative activities
 Each unit consists of a lecture (normally two days
before the course takes place) and classes. Aim of
lectures is to give a first introduction to the literature to
be discussed during the classes.
 Classes are there for the students to understand and
discuss the readings. The tutor is there just to help you
to develop an understanding and avoid mistakes.
The success of the classes depends on the
participation of the students!
Lecture team
 Andreas Reinstaller (truly yours): units 1-4 and postdiscussion. Topic: Evolutionary Perspectives on the
Economics of Innovation
 Elad Harison: unit 5. Topic: Intellectual property rights
 Ute Pieper: unit 6. Topic: Development economics and
issues of globalization
 Rene Kemp: unit 7; Topic: Evolutionary perspectives
on sustainable economic development
 Hugo Hollanders: unit 8. Topic: Indicators of
innovation and growth (Skills training)
Evaluation procedure:
Presentation
 Every student presents at least once (two papers)
 Everybody reads all the literature indicated as compulsory (2-3
papers per unit)
 The person presenting compiles a short summary of his/her
presentation and sends it via e-mail to the others
 The presentation has to be short (max 10 minutes) as
everybody is supposed to have read the related paper.
 The person presenting acts as discussion leader in the discussion
after his/her presentation.
 What has to be discussed? i) the study questions, ii) the relation of
the paper to STS iii) other issues you think are important iv) unclear
concepts have to be explained
 Presentations are valued (marks 5 to 10) and weighted as 45% of
the final mark. If you are interested to know how I evalued the
presentation send me a mail.
Evaluation procedure: Essay
 Aim: i) let you work with the concepts studied during the course
and apply them analytically, ii) train you to write a short and concise
report.
 Topics are already given at the end of the course book, so there is
plenty of time for you to think about it.
 Requirement: Shortness! Scientific accuracy! Some degree of
originality! Plagiarism is punished!
 The 9th meeting is for a post-discussion, where unclear concepts
or questions related to the essay should be discussed.
 Due date: December 2nd 2002 9h sharp, in electronic form (in
word or text format) e-mailed to me ([email protected]).
Don‘t hand them in to Rien Peeters, as written in the course book,
but send them to me!
 Beware: Essays handed in after that date will not be accepted!
 Your essay is weighted as 55% of the final mark
What is economics?
 The social science that studies the allocation of scarce
resources among uses by rational and well informed economic
agents (Neoclassical definition)
 The social science that studies the nature and the causes of the
wealth of a society and how it is redistributed among social classes
(Classical definition)
 Evolutionary Economics: has no specific definition, but relies more
on the “classical” definition (in its broadest sense), hence, it focuses
on how economic growth is achieved and what effects it has on
society.
 At the center of any economic enquiry is how single persons, a
community or a nation try to make themselves better off
through trade, productive or cultural activities, science, etc.
 Switch to other presentation
Consequences (?) of growth. Uneven
distribution of wealth
Source: Pianta (1995), Cambridge Journal of Economics 19, 175-87
Consequences (?) of growth. Catching up and
falling behind
From: Temple (1999), JEL 37 (1), p.115
The consequences of growth: environmental
damage and sustainability I
 Sustainability:
In 1987 the Brundtland
Report “Our Common
Future” defined
sustainable development
as
“ development that meets
the needs of the present
without compromising
the ability of future
generations to meet their
own needs”
This should be
achieved through:
Environmental
protection
Economic growth
Social equity
Consequences of growth. Structural
change.
GDP share of different sectors
Country
India
Italy
Germany
France
USA
agriculture
1960
1981
50%
37%
12%
6%
6%
2%
11%
4%
4%
3%
industry
1960
14%
41%
53%
39%
38%
1981
20%
42%
46%
35%
34%
services
1960
1981
26%
37%
47%
52%
41%
52%
50%
61%
58%
63%
Share of sectors in total working population
Country
India
Italy
Germany
France
USA
agriculture
1960
74%
31%
14%
22%
4%
industry
1981
1960
71%
11%
11%
40%
4%
48%
8%
39%
2%
48%
1981
13%
45%
46%
39%
42%
services
1960
15%
29%
38%
39%
48%
1981
16%
44%
50%
53%
56%
First part of the
presentation is over
See you in five minutes!!
How is the “growth phenomenon”
explained? The classics.
 Adam Smith (1776)
income per capita
 „must in every nation be regulated by
two different circumstances; first, by
the skill, dexterity, and judgement
with which its labour is generally
applied;...“(WN I.3)
 The division of labour is a powerful
device to increase labour productivity:
through i) the improvement and
dexterity of workers, ii) time saving
achieved in passing the work on, and
iii) the invention of specific
machinery (WN I.i.6-8)
 „The division of labour is limited by the
extent of the market“ (WN I,iii.1)
 increasing income per capita through
accumulation is the aim
 David Ricardo (1815)
the fall of the profit rate:
 „The natural tendency of the profits
then is to fall; for, in the progress of
society and wealth, the additional
quantity of food required is obtained
by the sacrifice of more and more
labour. This tendency [...] is happily
checked at repeated intervalls by the
improvements of machinery,
connected with the production of
necessaries...“, (Ricardo (1951),
p.120)
The Neoclassical framework, I:
Market demand
 Complete, i.e., agents have full
information on the available
commodities and which they prefer
over which
 Non-satiated: people are greedy,
they want more of each good in their
consumption basket
 …and some other properties…
 From this market demand is derived
price
 Utility: defined over a preference
relation, which is
 This implies:
 consumers will absorb every new
commodity on the market
 They will value more of a same
commodity less than a new
commodity (decreasing marginal
utility)
 Preferences are independent of
other social actors
quantity
If for a given income the price of a
commodity falls, more is asked for:
consumers maximize utility
The Neo-classical framework, II:
Market supply
 Producers know all
available technologies
 A technology is a combination
of factors of production
(i.e. capital=machines, labour,
land)
 These factors can be
combined at wanton to any
possible technology
(assumption of separability)
 Factors are combined to
maximize output at lowest
possible cost, at a given
price this maximizes profits
 Costs of production
increase with output
(increasing marginal cost –
decreasing returns)
From this the market supply is derived
price
 Market supply:
quantity
At a given technology producers want to
increase output at higher prices. Curve
slopes up due to increasing costs.
The Neo-classical framework, III:
Market equilibrium
price
 Market equilibrium is achieved,
when supply fully satisfies
demand. Welfare is maximised!
 Remind: each increase in output
will be absorbed by demand. This
is called Say’s law. Producers
maximize profits and consumers
p*
utility.
 This depends also on the
presence of perfect
competition. The market
equilibrium can be distorted
q*
under the presence of
quantity
monopolies or oligopolies.
 Technical change is conceptualised as pure
 Market failure arises when
cost reduction – this shifts the supply curve
markets cannot clear at given
prices.
outwards. More can be produced at lower cost:
technical change increases welfare as it
increases real income!
The Neoclassical framework, IV:
the production function
A
Capital intensity
Y  f ( K , L)
e.g.
Y  AK  L ,   
y=Y/L
Labour productivity
 The supply curve related
output to price.
 The production function is an
alternative view for it. It
captures explicitly the
technology of production
consisting of two factors,
capital (K) and labour (L),
and relates it to a specific
output (Y).
k=K/L
Curve is concave because of increasing costs.
1
Technical change (A) shifts the schedule up:
labour productivity increases.
What is the optimal rate of
accumulation? The Neoclassical
growth model.
Change of capital stock:
Savings = investment (sf(k))
Decreasing returns
Population growth (n)
Depreciation rate ()
Fixed amount of capital is needed
per capita ergo: (nk)

k  sf (k )  (n   )k
In equilibrium

k  sf (k )  (n   )k  0 
sf (k )  (n   )k
Or in words: Accumulation determines growth. The optimum accumulation is
such that investment equals the rate of population growth plus the rate of depreciation.
New capital is added as long as its productivity outweighs the replaced stock.
Measuring growth in the Neoclassical
framework. Total factor productivity
(TFP).
 The production function is
used to estimate statistically
the contribution of the factors
of production to growth.
 Everything that cannot be
explained by the factors of
production is “technical
progress” not due to
accumulation
 Decompose growth rate into
its elements -> and derive TFP
log Y  log A   log K   log L  
log Y   log K   log L  log A  
TFP  log A  
Conclusion:
Theoretically growth is explained
only through accumulation. The
empirical evidence shows (next
slides), that growth is not
explained in this model.
It rains “like manna from heaven”.
Evidence: switch to other
show
Problems...
 Theoretical:
 Just one sector:
economic reality is
different. Many economic
sectors interact. Diffusion
of novelty is slow.
 Decreasing returns: this
is empirically and
theoretically debatable.
New neo-classical growth
theory (endogenous
growth theory) assumes
increasing returns ->
critique by Solow: infinite
growth in finite time...
 Empirical:
Able to explain only a small
fraction of growth:
(from A. Young (1995))
19661990
Hong
Kong
Singapore
South
Korea
Taiwan
Growth
rate
7,3
8,7
10,3
8,9
Explain
-ed by
model
2,3
0,2
1,7
2,1
Not explained
5,0
8,5
8,6
6,8
Knowledge as a factor of
production: Human Capital (i)
 How to overcome the
problems? Knowledge
seems to be -> thus
widen capital concept in
Solow model to include
“Human capital”
“Human capital are the
knowledge, skills and other
attributes embodied in
individuals that are relevant
to economic activity”, OECD
(2000), Human capital
investment, Paris
 Measured by:
 Educational attainment:
highest level of education
 Measure presence of
economically relevant
characteristics (literacy level:
prose (understanding
information), quantitative
(apply mathematical
operations), document(use
and locate information in
forms))
 Problems:
 measurement
 Causality may run the other
direction
From: OECD (2000), Human Capital Investment, Paris
Knowledge as a factor of production:
Human Capital, the characteristics of
the stock (ii)
Knowledge as a factor of production:
Human Capital, the characteristics of
the stock (iii)
From: OECD (2000), Human Capital Investment, Paris
Knowledge as a factor of production:
Research and Development (i)
From: OECD (2000), Human Capital Investment, Paris
The failure of equilibrium models
to explain why R&D is done…
 If human capital, invention and
innovation are the driving forces
behind technical change, then the
equilibrium framework collapses
 If knowledge conceived as
information, then it has the
following properties:
 its production is risky – we do
not know whether we are able to
gain new knowledge if we engage
in research
 it cannot be easily appropriated
by who produces it; patents do
not guarantee perfect protection
 The generation of new knowledge
builds on existing knowledge. It is
cumulative
This has the following
consequence on the
investment into invention and
research:
 In a free enterprise economy
there will be underinvestment
in research and invention
because it is risky, its revenue
can only be appropriated to a
limited extent, and due to its
cumulativeness it puts off
inventive activities by
competitors.
The way out of the dilemma – one
(two) new paradigm
 New Growth Theory
New theories that integrate
the R & D process,
knowledge spillovers,
human capital
accumulation, learning by
doing
They move nevertheless in
the Neoclassical framework
and are empirically not
more explicative than the
established Growth theory
Evolutionary
Economics
More about it next
time….
Unit of analysis is the
firm and not an
aggregate
Knowledge is the
defining criterion for
firm behaviour, growth
and competition.