Economic evolution and uncertainty: Transitions and structural changes

Abstract

Economic evolution is said to occur when economic structures change. That is, when the institutional and/or technological rules of the society are replaced by new ones. As with evolutionary phenomena in other fields it is rather impossible to predict such changes. In this paper we present a simple model of evolutionary changes caused by uncertainty about the possible future states of the economy. Agents faced with uncertainty behave in such a way as to either lead the economy to another state or adjust themselves to the newly known environment. In either case, the change involves the modification of one or more fundamental parameters of the economy. Such modification is what we call an evolutionary change. We prove an impossibility result, stating that there is no way of coordinating those adjustments as to make true any given forecast. Moreover, we show that uncertainty about the future is a real source of novelty.