Diversity in the Knowledge Economy and Society

Diversity in the Knowledge Economy and Society

Heterogeneity, Innovation and Entrepreneurship

Science, Innovation, Technology and Entrepreneurship series

Edited by Elias G. Carayannis, Aris Kaloudis and Åge Mariussen

The key message of this book is that heterogeneity should be seen as an intrinsic and indispensable element of knowledge systems. The authors address the concept of heterogeneity in a multi-disciplinary fashion, including perspectives from evolutionary economics and innovation system studies, and relate this approach to existing theories in a broad range of fields.

Chapter 3: Heterogeneity in Economic Thought: Foundations and Modern Methods

Mark Knell

Subjects: business and management, diversity and management, knowledge management, economics and finance, economics of innovation, innovation and technology, economics of innovation, innovation policy, knowledge management


Mark Knell INTRODUCTION Behavioural heterogeneity and technological diversity have been central issues within economic thought since at least the time of Adam Smith. Heterogeneity among competitors, which is one of the most important features of the modern market economy, has also been one of the most controversial problems driving the development of the theory of competitive equilibrium.1 Modern neo-classical economists, including authors of virtually all textbooks, define competition as an end state that is synonymous with market structure. The assumption of perfect competition is necessary for the theory of competitive equilibrium, which requires that all goods and services are perfectly substitutable and that all economic actors have free and complete information. If this knowledge is not complete or product differentiation exists, then the market structure would be imperfectly competitive. By contrast, the classical economists, many of the early neoclassical economists, including the Austrian school, and evolutionary economists view competition as a process where competitive rivalry necessitates the need to be different and hence heterogeneous. Numerous episodes in the history of economic thought emphasize the importance of behavioural heterogeneity and technological diversity among firms and agents. In most instances, they were associated with the economists’ view of competition and the role of the firm within the economic theory. Our story begins with Adam Smith and the beginning of his magnum opus, An Inquiry into the Nature and Causes of the Wealth of Nations, first published in 1776. In the first three chapters of the first book, Smith explains...

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