Beyond Replicator Dynamics: Innovation-Selection Dynamics and Optimal Diversity

Karolina Safarzynska, Jeroen van den Bergh

Publication: Scientific journalJournal articlepeer-review

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We propose a new evolutionary approach to model technological change based on an
extension of replicator dynamics with recombination and mutation. It gives rise to interactive
innovation-selection dynamics. The model allows studying the combined effects of selection
and variety generation on evolutionary-economic change. The developed framework
describes a population of boundedly rational entrepreneurs who decide each period on the
allocation of investments in different production technologies. They tend to invest in belowaverage
cost technologies, just as under replicator dynamics. In addition, they spend a
constant fraction of investments, captured by mutation and recombination rates, on alternative
technologies and research on recombinant innovation. As opposed to most previous studies,
mutation and recombination are here conceptual variables with a concrete behavioral
interpretation, namely describing the decision rules (heuristics) of investors. We compare the
dynamics of shares of investments in various technologies for three cases: with constant costs
of capital, with costs decreasing steadily and exogenously over time, and with costs
depending on the level of cumulative investments. For each model version, we examine under
which conditions the coexistence of technological options is feasible and optimal in terms of
minimising the average cost of investments.(authors' abstract)
Original languageEnglish
Pages (from-to)229-245
JournalJournal of Economic Behavior and Organization
Issue number3
Publication statusPublished - 1 Feb 2011

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