Dr Zhen YeThe University of HertfordshireBusiness School

Evolutionary and Institutional EconomicsEvolutionary and Institutional EconomicsLecture 2 Evolutionary Theorising of Economic Change

Xiamen University The School of Economics April 2007

Postgraduate Lecture Series

Case discussion Case discussion

• Evolutionary and institutional theories as “a general theory” on “how to develop specific and varied analyses of specific phenomena” (Hodgson, 1998)

• Research, discuss and develop a case study on the evolution of Yuandang lake ( 筼筜湖 ) and its surrounding economic environment

• 通过调查研究、分析筼筜湖的历史地理及沿湖经济环境的变迁，讨论‘诱致性变迁’和‘强制性变迁’ （林毅夫， 1994 ）过程中政府所起的作用，以及政府、企业行为对资源配置的长期影响。结合相关演化及制序理论探讨筼筜湖畔经济环境未来演变的几种可能

Structure of presentationStructure of presentation

• Evolutionary theorising of economic change

• Building blocks of evolutionary theorising

• Routines revisited

• The application of evolutionary theories in economic analysis

Evolutionary theorisingEvolutionary theorising• Competence puzzle (Nelson and Winter, 2002)• Darwinian thinking

– The principle of variation– The principle of inheritance– Selection and survival

• Why renewed interests on evolution? – The origin of species (1895)– OIE (Veblen, 1899)

• Critique of ‘Social Darwinism’• History matters

Four building blocks: Dosi and Nelson (1994)Four building blocks: Dosi and Nelson (1994)

• An evolutionary theory must define some stable units of analysis – like genes in biology

• The unit of analysis are ‘carried’ by some individuals or organisations - like organism in biology – which are the objects of selection

• A mechanism of mutation, which includes some random elements, generates new unit of analysis, and renews the variety that is destroyed in the selection process.

• The organisms that carry the ‘genes’ interact and some are selected at the expense of others – the fittest survive.

Routines as gene?Routines as gene?• Routines as the stable unit of analysis in evolutionary

theorising • Routines ≠ gene

– Routines do not replicate biologically– Much less enduring

• Routines are relatively durable carriers of information– Both codified and tacit information (Polanyi, 1967)

• Habits as the basis and individual analogue of routines• Rediscovery of routines in economics and the theory of the firm• But importance of understanding change and change analysis

– Mutation and environmental influences

How do routines carry information?How do routines carry information?• Routines revisited• Cross fertilization between psychology and economics• Cognitive memory: storing representations (Hodgson, 2006)• Procedural memory: triggered by preceding events and stimuli

and typically leads to behavioral responses (ibid.)• A routine derives from the capacity of an organisation to

provide conditions to energise a series of conditional, interlocking, sequential behaviours among several individuals within the organisation.

• Definition: routines are organisational dispositions to energise conditional patterns of behaviour within an organised group of individuals, involving sequential responses to cues. (ibid.)

Why is it difficult to hire a taxi between Why is it difficult to hire a taxi between 5:00-5:30 in Xiamen?5:00-5:30 in Xiamen?• What do you think of this phenonmenon?• What are the roles of individual habit and organisational routine

underlying this problem? • What could have induced a change in individual habit and

organisational routine?• Is there any other ways that this problem could be resolved?• What does this problem tell us about similar problems

confronting reformers who are eager to change or re-design the existing institutions?