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- Title
Some Elementary Selection Processes in Economics.
- Authors
Farrell, M.J.
- Abstract
The discussion of biological natural selection in and after Darwin [3] was intimately linked with the discussion of how selection processes (of an essentially economic nature) might operate within human society so as to affect the characteristics of members of that society (see, for instance, Hofstadter [9]). Indeed, the link is so intimate that Darwin himself acknowledged a debt to Malthus (see Hofstadter [9], p. 25). This paper is not intended to contribute anything to the discussion of such great questions, which we shall leave to sociologists and political philosophers; rather it is directed towards answering narrowly economic questions about the effects of selection processes on the behaviour of the firms in a particular industry or the speculators in a particular market. Thus, the sort of question we would like to answer (although the present paper is only the first, tiny, step towards doing so) is not "what is the effect of the 'welfare state' on the development of society?" but "what is the likely effect of capital gains taxation on the stability of prices on the Stock Exchange?". Within our narrowly chosen field, the literature consists mainly in a large number of casual references to the effects of selection processes, which we have made no attempt to list. One topic discussed at relative length has been the implications of selection processes for the theory of the firm, as, for example, in Alchian [1], [2], Enke [4], Penrose [11] and Winter [12]. Given the immense complexity of the subject and the relative brevity of the papers discussing it, it was natural that for the most part the arguments were either by analogy or by broad description of the selection processes which might be at work. Winter, in much the longest contribution, not only gave a thorough and perceptive critique of previous work, but also set up a formal, specific model of his own. Unfortunately, illuminating though this model is in many ways, it seems designed to characterize a deterministic, long-run equilibrium similar to that sought by those who elaborated the theory of the profit-maximizing-under-perfect-knowledge firm. Another branch of economics where the implications of selection processes are important (especially in view of recent difficulties with the international monetary system) is that of speculative markets—e.g, foreign exchange markets, commodity markets, stock markets, and so on. Here the literature is fragmentary in the extreme. There has indeed (see, for instance, Farrell [5]) been a lengthy discussion of whether the profitability of speculation ensures that it will make prices more stable; but the necessary concomitant—a selection process which would ensure the domination of the market by speculators who made money —has been almost entirely neglected. The present paper develops two very simple models which are, however, specifically economic in motivation, and which it is hoped will capture, at a highly abstract level, some of the essential features of selection in economics.
- Subjects
ECONOMICS; NATURAL selection; BRANCHING processes; GENETICS; BIOLOGICAL evolution; SOCIAL Darwinism; BIOLOGY; LIFE sciences
- Publication
Review of Economic Studies, 1970, Vol 37, Issue 3, p305
- ISSN
0034-6527
- Publication type
Article
- DOI
10.2307/2296723