Transcript complexity and institutional evolution

COMPLEXITY AND
INSTITUTIONAL EVOLUTION
J. Barkley Rosser, Jr.
Marina V. Rosser
James Madison University
November, 2015
[email protected]
[email protected]
Abstract
 This paper shows which portions of complexity theory are most
relevant for studying economic institutional evolution.
 This question leads to both the two main competing economics
complexity theories: dynamic and computational complexity.
Central to this is the concept of cumulative causation, invented by a
main founder of institutional economics, Thorstein Veblen, a fact
not widely recognized. This provides the basis for increasing
returns, multiple equilibria, and bifurcations in the evolution of
institutions.
 A central issue in institutional evolution involves hierarchical
emergence, with the interaction of spontaneous emergence with
natural selection a central issue. Recognizing these issues may
provide a new synthesis of the old and new institutional economics.
Relevant Forms of Complexity
• Among the many identified forms of complexity (at least 44
according to Seth Lloyd), the most widely used in
economics are dynamic (Day; Rosser) and computational
(Velupillai; Axtell, 2005).
• The former involves systems endogenously following erratic
patterns not converging on equilibrium or steady growth.
• Computational complexity involves qualitative levels of
difficulty in solving programs.
• Both of these are relevant to problems of institutional
evolution, which are dynamic, but also can involve
emergence arising from failures to solve problems at a
given level.
Veblen and Cumulative Causation
• Veblen (1898) famously argued that economics should be “an
evolutionary science.” From the beginning he identified this as
involving the evolution of institutions, with the main group of old
institutionalist economists known as the Association for
Evolutionary Economics, reflecting Veblen’s influence. ]
• Despite this being forgotten by most of the profession, many
sources identify either Allyn Young (1928) or Gunnar Myrdal (1957)
as coiners of “cumulative causation,” which always implied
increasing returns. But, from 1898, “Cumulative causation leaves
no place for a formulation of natural laws in terms of definitive
normality, whether in economics or in any other branch of
inquiry”(p. 378), and “An evolutionary economics must be the
theory of a cumulative sequence of economic institutions stated in
terms of the process itself (p. 393).
Veblen’s Relation with Commons and
Schumpeter
• T. Papageorgiu, I.Katselidis, and P. Michaelides in (2013)
argue that those first two leaders of American (old)
institutional economics share views with evolutionary
economist, Schumpeter, particularly their view that
evolutionary economic change is not an equilibrium
process.
• Veblen and Schumpeter share an emphasis on
technological change as a driving evolutionary force, which
has no definite direction, even as Schumpeter criticized
institutional economics. Commons had a more teleological
view than either Veblen or Schumpeter. For Veblen, the
Darwinian “scheme of thought” is “of blindly cumulative
causation, in which there is no trend, not final term, no
consummation.” (1907, p. 304)
Veblen and Schumpeter on Evolution
Continuous or Discontinuous?
• Major area of dispute in evolutionary theory between
continuous and “saltationalist” (discontinuous) theories of
evolution. In biology, Darwin leader of continuity school,
with Gould and Eldredge arguing for “punctuated
equilibria.”
• Marshall followed Darwin, with “natura non facit saltum,”
although he did not discuss institutional evolution per se.
Marshall emphasized competition among firms, revived as
evolutionary view by Alchian (1950).
• Schumpeter supported saltationalist view in technology.
Veblen agreed on technology and at crucial points for
institutional evolution.
Veblen on Crises in Institutional
Evolution
• “Not only is the individual’s conduct hedged
about and directed by his habitual relations to
his fellows in the group, but these relations,
being of an institutional character, vary as the
ways and means, the amplitude and drift of
the individual’s conduct are functions of an
institutional variable that is of a highly
complex and wholly unstable character.”
(Veblen, 1919, pp. 242-243)
Increasing Returns in Social
Interactions and Multiple Equilibria
• W. Brian Arthur (1994) long argued increasing
returns can bring complexity. Model of
Arthur, Ermoliev, and Kaniovski (1987) offers
key for social interactions leading to multiple
equilibria in institutions. Applied by Minniti
(1995) to crime, whether society mostly
criminal or not. Rosser, Rosser, and Ahmed
(2003) apply model to study of shadow
economies in transition, again with multiple
equilibria and thus critical bifurcations.
Role of Fitness Landscapes
• The analytical framework: Fitness landscapes due
to Sewall Wright (1932).
• Multiple local “hills” (optima) recognized by
Wright, studied later by Kauffman (1993), with
“complexity catastrophe” arising as more
dimensions arise.
• Applied to institutional evolution by Mueller
(2014).
• While Wright hated emergence idea, Gouldian
discontinuities inherent in “rugged landscapes.”
Institutions and Organizations
• While much debated, it is generally argued that
institutions and organizations are not the same
(North, Williamson).
• Organizations are decision making hierarchical
structures specifically created by groups of
humans.
• Institutions are practices or customs that persist
over time, often with cultural embedding. Legal
systems and broader economic systems also fit in.
They are the memes that evolve in evolutionary
institutional economics (North and Winter, 1982).
Ostrom and Cooperative Institutions
Ostrom (1990) provides study of cooperative
institutions for management of commons
resources subject to prisoner’s dilemma.
Sethi and Somanathan (1996) provide
conditions for Nash equilibria, with multiple
equilibria, some destructive, some supportive,
of sustainable development.
Rosser and Rosser (2006) extend this argument.
Cooperation and Emergence of MultiLevel Evolution
• Henrich (2004) on cultural group selection.
• Crow (1955) and the “Hamilton-Price” equations,
conditions depend on in-group versus out-group
variance, with variability, selection, and
inheritance keys to evolution (Hodgson and
Knutsen, 2006).
• Eigen and Schuster (1979) provide key through
information preservation in emergence of higher
levels in hypercycle. See also Kauffman (1993).
Eigen and Schuster’s Condition for the
Hypercycle (1979)
• Let Vm be the number of symbols, σm > 1 be
the degree of superiority of the “master copy”
in selective advantage, and qm be the quality
of symbol copying. Then the “threshold of
information content” above which copying
will degenerate due to an “error catastrophe”
is given by
•
Vm < ln σm/(1- qm).
Crow’s Condition for Multi-Level
Evolution (Crow, 1955)
• Let Bw be the within-group genic regression on the
fitness value of a trait as defined by Wright (1951);
Bb be the between-group genic regression to the
fitness value, Vw be the within-group variance across
individuals, and Vb be the across-group variance.
Given that we expect Bw to be negative and Bb to
be positive, a sufficient condition for an altruistic
trait to increase in a population is given by
•
Bb/(-Bw) > Vw/Vb.
Emergence and Natural Selection
• Issue raised by Simon (1962) and discussed by
Rosser (2014) and Rosser and Rosser (2015).
• Linked to old British “emergentism” dating
from Mill (1843) and “heteropathic laws,”
Lewes (1875) and in evolution, Morgan
(1923), repudiated by neo-Darwinian
synthesis, including Wright, despite doubts by
Haldane.
Hayek and Evolutionary Emergence
• Hayek(1951, 1967, 1988) allowed for emergence
in psychology and then in economic evolution of
institutions.
• Lewis (2012, 2015) on this.
• Role of systems theory, especially von Bertalanffy
(1950, 1969).
• Hidden link through Wiener and cybernetics with
earlier “universal system of organizations,” aka
tektology of Bogdanov (1902, 1980). See also
Stokes (1995).
• Cybernetics early form of dynamic complexity.
Neo-Schumpeterian Views on
Emergence of Institutional Evolution
• Nelson and Winter (1982) as focusing on
memes of practices (“memes” due to Dawkins
and his “universal Darwinism,” Hodgson and
Knutsen, 2006).In philosophy Gerard?
• Meso-economics and emergence of
institutions in neo-Schumpeterian evolution
(Dopfer, Foster, Potts, 2004).
Resolution of Old and New
Institutional Economics
• Veblen cumulative causation implies complex
dynamic, even if Veblen not fully aware of it.
• Commons (1934) father of importance of idea
of transaction, point recognized by Coase
(1937) and his champion, Williamson.
• While Coase not aware of it or supportive,
search for minimizing transaction cost can be
lead evolutionary dynamic and complexity
(Mikami, 2011).
Epistemic Issues and Institutional
Hierarchic Emergence
• Epistemic issues can arise from asymmetric
information but also from computational complexity
(Koppl and Rosser, 2002; Koppl et al, 2015).
• Hierarchies of computational complexity associated
with information structures of institutions can lead to
emergence of higher level institutions as bifurcations
occur in such systems.
• Evolutionary competition between such systems, such
as different forms of markets, can also have such
hierarchies as in the markomata theory of Mirowski
(2007).
Partial Bibliography
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Lewis, P.A., 2012, “Emergent properties in the work of F.A. Hayek,” Journal of
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Mikami, M. 2011, “Evolutionary aspects of Coasean economics,”Evolutionary and
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