Investment in the Theory of Evolutionary Competition

J. Stanley Metcalfe
Work package: 
WP 3
Publication number: 
01 July 2010

Abstract: This paper explores the dynamics of industry development in a model of evolutionary competition when firms differ in multiple selective characteristics, in particular, differences in unit production costs are combined with differences in growth strategies as expressed in propensities to invest. Fisher’s Principle uncovers the dynamics of population change in an industry and we explore how selection in two dimensions differs fundamentally from the familiar one dimensional selection processes. The Marshallian concepts of the representative firm, the marginal firm and economic flux play a precise analytical role in the analysis. We conclude by drawing attention to some of the empirical challenges that flow from the evolutionary approach to long period industrial dynamics.

JEL Classification: B25, L16, M20, O12.

Key Words: Nelson and Winter, Marshall, Kaldor, evolutionary competition, Fisher’s Principle, multi dimensional selection, industrial flux, profitability and growth, rate of economic selection.

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