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The Evolutionary Complexity of Endogenous Innovation

The Engines of the Creative Response

Cristiano Antonelli

The notion of endogenous innovation as the outcome of the creative response of firms to out-of-equilibrium conditions is the cornerstone of the new evolutionary complexity. This book elaborates and applies the theoretical framework established in the author’s previous work Endogenous Innovation: The Economics of an Emergent System Property. This volume carefully explores the role of the reactivity of firms to out-of-equilibrium conditions. It also examines the quality of knowledge governance mechanisms in assessing the levels of externalities that define the likelihood of creative responses, as an alternative to adaptive responses.
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Chapter 9: The endogenous dynamics of pecuniary knowledge externalities

Cristiano Antonelli and Gianluigi Ferraris

Extract

This chapter elaborates an agent-based simulation model (ABM) to explore the endogenous long-term dynamics of knowledge externalities. ABMs, as a form of artificial cliometrics, allow analysis of the effects of the reactivity of firms caught in out-of-equilibrium conditions, combined with endogenous knowledge externalities stemming from the levels of knowledge connectivity of the system. The simulation results show the working of endogenous knowledge externalities as well as their powerful effects. At the micro-level, the reactions of firms caught in out-of-equilibrium conditions yield successful effects in the form of productivity-enhancing innovations only in the presence of high levels of knowledge connectivity and strong pecuniary knowledge externalities. At the meso-level, the introduction of innovations changes the structural characteristics of the system in terms of knowledge connectivity that affect the availability of knowledge externalities. Endogenous centrifugal and centripetal forces continually reshape the structure of the system and its knowledge connectivity. At the macro-system level, an out-of-equilibrium process leads to a step-wise increase in productivity combined with non-linear patterns of output growth characterized by significant oscillations typical of the long waves in Schumpeterian business cycles.

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