Impact of environmental dynamics on economic evolution: A stylized agent-based policy analysis

Nannen, Volker and van den Bergh, Jeroen C. J. M. and Eiben, A. E. (2013): Impact of environmental dynamics on economic evolution: A stylized agent-based policy analysis. Published in: Technological Forecasting and Social Change No. 80 (February 2013): pp. 329-350.

Abstract

The general problem of how environmental dynamics affect the behavioral interaction in an evolutionary economy is considered. To this end, a basic model of a dynamic multi-sector economy is developed where the evolution of investment strategies depends on the diversity of these strategies, social connectivity, and relative contribution of sector specific investments to production. Four types of environmental dynamics are examined that differ in how gradual and how frequently the environment changes. Numerical analysis shows how the socially optimal level of diversity increases with the frequency and speed of environmental change. When there is uncertainty about the specific type of environmental dynamics---whether for lack of data or because it is not constant---the socially optimal level of diversity increases with the degree of risk aversion of the policy maker or the society.

• Item Type: MPRA Paper
• Language: English
• Keywords: agent-based economics; dynamic environments; evolutionary economics; optimal diversity; public policies; risk aversion
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty; B - History of Economic Thought, Methodology, and Heterodox Approaches > B5 - Current Heterodox Approaches > B52 - Institutional ; Evolutionary; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q51 - Valuation of Environmental Effects; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O31 - Innovation and Invention: Processes and Incentives; H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H32 - Firm

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