Publication Date

October 2007

Publication Details

Pol, E, An Appreciative Model of Schumpeterian Evolution, Working Paper 07-17, Department of Economics, University of Wollongong, 2007.

Abstract

Schumpeter persistently sought to reconcile innovation with general equilibrium to explain economic evolution. In essence, he was interested in innovatory discontinuities that upset equilibrium and generate a transitional dynamics converging to a different state of technology. There are two central approaches to the analysis of economic evolution which revolve around the Schumpeterian vision: the evolutionary approach as originated in the landmark book by Nelson and Winter An Evolutionary Theory of Economic Change and the neoclassical approach emerging from Romer’s seminal paper “Endogenous Technological Change” Neither of these approaches is able to explain economic evolution in an economy where both general equilibrium and innovatory discontinuities can happen. In this paper I formalize the notion of innovatory discontinuity using the concept of ‘ideas production function’ and present an appreciative model of economic evolution involving equilibrium, innovation and innovatory discontinuities. This (hybrid) model sheds some light on the answer to the question: is economic evolution continuous or discontinuous?

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