Evolution and Economic Complexity.

Author:Pavlov, Oleg V.
Position:Book review

Evolution and Economic Complexity, edited by J. Stanley Metcalfe and John Foster. Cheltenham, U.K.: Edward Elgar. 2004. Cloth, ISBN 1843765268, $100.00. 227 pages.

The book, edited by J. Stanley Metcalfe and John Foster, focuses on the connection between economic evolution and economic complexity. It includes an overview essay written by the editors and nine papers that were presented during the second Brisbane Club workshop in Manchester, U.K., July 5-7, 2002.

An article by Kurt Dopfer from the University of St. Gallen in Switzerland and Jason Potts from the University of Queensland in Australia explains a conceptual framework of micro-meso-macro analysis. Within their framework, organizations and economies are represented as systems of agents and rules. During the evolutionary process, rules store knowledge and are created, maintained, and dropped by agents. The meso part of the analysis studies rule emergence and rule evolution. The evolutionary path of rules, called the meso trajectory, gives rise to the simultaneous micro and macro paths. Hence, the meso analysis is the foundation of micro and macro analysis. Complexity is the result of many possible rule arrangements within a system.

Paul Ormerod and Bridget Rosewell from Volterra Consulting, U.K., argue that the appropriate criteria for assessing any model of a social system are the plausibility of its behavioral rules, the purpose of the model, and its predictive power. They present an agent-based model of U.S. business cycles. The model demonstrates that the variability in activities of the firms can cause business fluctuations. The authors also briefly describe an agent-based model of competition. Ormerod and Rosewell emphatically communicate their frustration with the lukewarm reception their models have received from economists. I wonder if the poor reception can be explained, at least partially, by the authors' strong opinions about the state of economic modeling and the lack of acknowledgement of the extensive literature on business cycles, the behavioral theory of the firm, and agent-based modeling.

Division of labor and outsourcing are tools that organizations use to enhance their capabilities, asserts Paolo Ramazzotti of the University of Macerata, Italy. He maintains that division of labor, firm capabilities, firm boundaries, strategic objectives, and learning form a feedback loop: management determines goals (such as cost-cutting or quality enhancement) and designs the...

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